Socially Responsible Investment Priorities
Investing means making choices. For the Treasurer’s Office, it means choosing investments that are safe, high-performing, and socially impactful. In regard to that third component, it means making investments that build stronger communities in Illinois, foster business innovation, and reflect our core values relating to diversity, integrity, and public accountability. These decisions have the ability to promote education, access, and opportunity for individuals and governmental bodies across our state.
Research consistently demonstrates that businesses with responsible environmental, social and governance (ESG) policies outperform their laggard peers and experience sustainable growth. As such, the Treasurer’s Office believes an essential part of effective portfolio management is fostering and maintaining an attention to good corporate governance. As a large and long-term investor to funds and corporations around the nation, the Treasurer’s Office has a vested interest and civic duty to advocate for socially responsible investment practices that deliver sustainable growth and returns over the long-term.
Environmental, Social and Governance Best Practices
As an institutional investor managing over $25 billion, the Treasurer’s Office strives to be a national leader in the movement to develop and execute best practices for corporate governance. This includes a variety of different activities, including, but not limited to:
• Developing robust principles, policies and standards for fair and open governance of corporations;
• Conducting proxy voting activities that reflect ESG responsibilities;
• Engaging fund managers and companies to actively promote ESG best practices and socially responsible investing; and
• Working collaboratively with other institutional investors to build broader support for socially responsible investing.
To read the Treasurer's ESG Investment Policy, please visit the investment and financial policies webpage.
The Treasurer’s Office strives to foster an investment culture that values long-term sustainability, community development, and growth. ESG best practices are central to achieving these outcomes. Furthermore, the values that underpin ESG best practices manifest in various other priorities and programs of the Treasurer’s Office. In this way, the Treasurer’s Office considers ESG priorities part and parcel to innovation, performance, and good governance. Notable efforts include the areas outlined below.
- Creating More Opportunities for MWVD Businesses – Inclusion is a key pillar of the Treasurer's investment strategy. Research demonstrates that MWVD-owned companies are often well-situated to ascertain capital inefficiencies in the market, and as such, many are primed to outperform their peers. Treasurer Frerichs and his staff have transformed the culture, policies, and operations of the Treasury to enhance opportunities available to minorities, women, military veterans, and disabled (MWVD) individuals and business partners.
Assets brokered with MWVD firms increased from a monthly average of $50.3 million in FY 2014 to $2.0 billion per month in FY 2016 (year-to-date). That’s more than 40 times more utilization of MWVD firms. To learn more about business opportunities available to MWVD firms, please visit our MWVD Firms page.
- Advocating for Corporate Board Diversity – The Treasurer’s Office believes that corporate board diversity, emphasizing the inclusion of racial and LGBT diversity as well as gender diversity, is a critical dimension of effective board composition and performance. As such, the Treasurer’s Office is taking a proactive approach to stop the status quo and help ensure board diversity is a corporate governance priority. To that end, Treasurer Frerichs joined other state and local leaders in urging corporate board diversity by signing a Joint Statement on Corporate Board Diversity in June 2016.
Advocating for Gender Diversity on Corporate Boards -- The Treasurer's Office is a proud member of the Thirty Percent Coalition. This groundbreaking organization is committed to the goal of women, including women of color, holding more boardroom seats across public companies. Doing so leads to a greater return on the money we invest on behalf of the State of Illinois. Studies show that companies with gender diverse boards are 15 percent more likely to outperform the median in their industry.
Member of the Midwest Investors’ Diversity Initiative – The Treasurer’s Office is a proud member of the Midwest Investors’ Diversity Initiative, which is composed of institutional investors (with $285 billion in assets in management) that seek to engage corporations on board diversity priorities. Through the Initiative, the Treasurer’s Office advocates for companies to adopt policies requiring that minorities, women, LGBT individuals, and others with diverse backgrounds be actively considered for board positions. Not only do key leaders in the business community support this policy direction, but numerous studies indicate that diverse boards outperform their laggard peers.
- Taking Action to Increase Diversity in the Financial Sector – The Treasurer’s Office is a proud member of the Financial Services Pipeline Initiative, adding its voice and resources to a coalition of prominent financial institutions with a mission to (1) increase the representation of Latinos and African Americans, at all levels, within the Chicago area financial services industry, and (2) improve the overall cultural competency within the Chicago area financial services industry. The Treasurer’s Office actively participates on the CEO Leadership Council and the Steering Committee to devise core strategies and develop action plans.
- Collaborating with the Rainbow PUSH Wall Street Project – The Treasurer’s Office is a steadfast supporter of the numerous efforts led by the Rainbow PUSH Wall Street Project. The Wall Street Project is dedicated to ending the multi-billion dollar trade deficit with minority vendors and consumers by working to ensure equal opportunity for diverse employees, entrepreneurs, and consumers.
- Enforcing Community Reinvestment Act (CRA) Standards – The Treasurer’s Office wants to encourage an open and effective banking system that grows local communities and boosts Illinois’ economy. By law, the Treasurer’s Office is authorized to consider a financial institution’s record and current level of financial commitment to its local community when deciding whether to deposit State funds in that financial institution.
Under Treasurer Frerichs, depository institutions are ineligible to do business with the Treasurer’s Office if they have a CRA rating below “satisfactory.” To learn more about CRA priorities, please visit our Community Reinvestment Act page.
- Utilizing Top-Rated Banking Counterparties – In line with the Treasurer's commitment to community development and accountability, all approved banking counterparties that do business with the Treasurer’s Office maintain a Community Reinvestment Act (CRA) rating of "outstanding" or "satisfactory" (as of May 2016).
- Wells Fargo Suspended – In October 2016, Treasurer Frerichs suspended $30 billion in investment activity from Wells Fargo after the bank acknowledged it improperly opened more than 2 million bank accounts and violated the rights of active duty military personnel. Wells Fargo personnel improperly opened credit and debit cards as well as deposit and online accounts without the knowledge of their customers between 2011 and 2015. During this five-year period, the company extracted millions of dollars in fraudulent fees and damaged credit records, forcing some customers to pay higher interest rates on loans. As the state’s chief banking officer and investment officer, Treasurer Frerichs has a responsibility to identify institutions that offer good value to citizens and are good community partners. Wells Fargo’s acknowledgement of improper banking activity demonstrates a troubling business culture and a stunning lack of internal controls. For these reasons, Treasurer Frerichs ordered a suspension of this investment activity. The suspension will be reviewed in one year to determine if Wells Fargo has taken corrective action to merit the return of this Illinois investment.
- Advocating for Transparency in Fee Disclosure – Transparency and accuracy in the reporting of fees is essential to securing competitive rates from investment managers. When stewards of public investment portfolios, such as State Treasurers, have ready access to appropriate and relevant fee data, including aggregated data on gross management fees, management fee offsets, fund expenses, and other expenses, they are better positioned to negotiate lower costs for their constituents. The Treasurer’s Office has spearheaded a number of advocacy and legislative efforts to enhance transparency in fee disclosure, particularly in the private equity and hedge fund spaces.
- Endorsement for ILPA Fee Reporting Template – The Treasurer’s Office endorsed the Fee Reporting Template developed by the Institutional Limited Partners Association (ILPA). This reporting template captures greater detail on fees, expenses, and carried interest paid to General Partners and their affiliates. Not only does it enhance disclosures, but its broad endorsement is designed to increase uniformity in the field.
- Inclusion and Green Technology Goals under ILGIF – As a part of the Illinois Growth and Innovation Fund (ILGIF), the Treasurer’s Office seeks to support fund managers and portfolio companies that that are more than 50% owned and/or managed by minorities, women, military veterans, or disabled persons. In addition, the Treasurer’s Office seeks to utilize fund managers that have demonstrated experience and/or an express ability to invest in green technology businesses located in Illinois. To learn more about ILGIF, please visit our Illinois Growth and Innovation Fund page.
- Calvert Equity Portfolio – Individuals and families using Treasurer’s Bright Directions Colleges Savings Program have the opportunity to invest in a mutual fund, Calvert Equity Portfolio, that is specially tailored to support responsible investing. In conjunction with Calvert’s financial analysis, Calvert’s comprehensive responsible investment principles guide its investment research processes and decision-making. This means that investments are judged by their environmental, social and governance (ESG) performance. And not only does this help promote responsible environmental, social and governance best practices, but this assessment helps inform risk and opportunity factors that may impact investment performance. Furthermore, a special portion of the Calvert Equity Portfolio fund seeks direct investment in young enterprises providing solutions to pressing social, environmental, and health problems.