State Treasurer Todd Russ’ push for so-called Oklahoma values to be a big factor in awarding investment manager contracts could land the board that oversees the state’s $2 billion tobacco settlement trust in hot water, one board member said.
The dispute is the latest chapter in the long-running fight over environmental, social and governance factors and state investments from endowment funds and retirement systems.
John Waldo, who sits on the Tobacco Settlement Endowment Trust’s Board of Investors, retained former attorney general Mike Hunter to seek clarity on the policy approved at a February board meeting. Waldo voted no at the time.
In the 3-1 vote, TSET’s investor board approved a policy called the Oklahoma Values Alignment Assessment. Innovest, the board’s new investment consultant, helped develop the policy.
Russ has been a leader among Republican state treasurers in the battle over corporate values and ESG issues. He said corporate boards have strayed from their mission to return value to shareholders. But Waldo said the TSET board wasn’t given any clear definitions of what Oklahoma values were or how they might guide investment decisions and the hiring of investment managers for the trust.
The policy aligns the TSET fund with policy objectives advanced by anti-ESG conservative nonprofits such as the State Financial Officers Foundation, the Heritage Foundation, and the 1792 Exchange. Innovest developed a portfolio-alignment ratings system for 20 of TSET’s fund managers.
“Managers are rated on a scale from 1 to 5, with higher scores reflecting stronger alignment with Oklahoma Economic Interests and Policy Initiatives – specifically a focus on shareholder value, avoidance of political or speculative agendas and responsible stewardship,” Innovest’s latest report said.
The report gave lower scores to seven of the investment managers it said offer clients ESG-focused products or emphasize ESG policies and climate-change initiatives.
Letters Discuss Policy
Hunter and Russ exchanged letters on the TSET values policy at the end of June. Hunter said the policy likely violated a recent Oklahoma Supreme Court decision regarding retirement funds. He said Waldo was worried about his personal liability if someone sued the TSET investor board over the policy.
On Waldo’s behalf, Hunter asked Russ to put the policy up for a revote at its July 1 special meeting. Russ declined, saying he wasn’t responsible for providing legal advice to board members. He said the TSET fund had different goals than a state retirement system.
“As you noted, Mr. Waldo voted against the measure he denounces,” Russ wrote in a June 30 letter. “For that reason, I find his concerns about personal liability disingenuous. Regardless, you are better placed to advise him of his legal liabilities than I would be.”
Rep. Jared Deck, D-Norman, asked the attorney general’s office on Aug. 9 for an opinion on the TSET values policy. He echoed Waldo's concerns and included the letters in his AG opinion request. That opinion remains pending.
Waldo raised the policy and the pending request for an AG opinion at the Aug. 19 meeting of the TSET investor board. He is an appointee of term-limited State Auditor and Inspector Cindy Byrd, who defeated Russ in June in the GOP primary for treasurer.
The board voted 3-1 to issue a request for proposal for an investment manager for up to $30 million in a subset of private equity called satellite funds. The RFP’s scoring matrix allocated 20% of the points to a category called Oklahoma economic values, public policy objectives alignment, and ESG.
Waldo, who voted no, said it didn’t make sense for 20% of the scoring to be based on subjective decisions about Oklahoma values, while it allocated 10% of the scoring matrix to operations, administration, and risk management.
“We’re giving twice as many points to Oklahoma values as we are on investment philosophy,” Waldo said. “Why do we have a decrease of performance and an increase in economic values and ESG?”
Hunter, in a Monday phone interview, said he thought it was unwise of the TSET investor board to approve a new RFP that uses the values policy while an AG opinion was pending.
A spokeswoman for Russ said he had no additional comments beyond the June 30 letter to Hunter.
The investor board, a separate entity from TSET’s board of directors, sets investment policies and certifies earnings from the trust fund for smoking-cessation and health-related projects and grants.
This article first appeared on Oklahoma Watch and is republished here under a Creative Commons Attribution-NoDerivatives 4.0 International License.