17 Jul PUBLIC PENSION CORNER, #49: Sustainability and the “Planning Paradox”
NEWS:
I. San Diego City Pension Plan Still Focused on ESG
While we have tried to make the case (for years and in various forums) that ESG is fiduciarily unsound, not everyone has taken this message to heart. Indeed, some public pensions are resisting with all their might:
The San Diego City Employees’ Retirement System, an active investor in private markets, has found broad improvements in an annual ESG review of its fund managers, according to documents from the public pension fund.
“Nearly all of SDCERS’ investment managers have made strides in at least one of the categories in 2025,” Demitrios Haldes, an investment officer at SDCERS, said in a letter to the investment committee.
As part of the review, SDCERS sent questionnaires to all of its investment managers and collected information on ESG initiatives at each firm over the past year. It grouped the information into four categories: growth of ESG teams, new engagements with external ESG firms, expanded ESG reporting and enhanced ESG integration.
II. Axios reiterates that ESG is just talked about less
Axios reports this morning what many before have said and what many of us know is true: corporations and large investors are still engaging in ESG practices. They’re just talking about it less:
There hasn’t been a significant reduction in actual corporate environmental reporting, says Tyler Spalding, chief marketing, communications and engagement officer at JUST Capital.
- Investors see management of environmental and other stakeholder issues as a signal of overall management quality, which continues to encourage companies to measure and disclose their progress, he explained….
- So instead, companies are focusing on communicating “at the right time, to the right people.”
Between the lines: Talking about “nature-based solutions” is one way for companies to signal their environmental commitments, said Frank Sesno, a professor at George Washington University and executive director of the GW Alliance for a Sustainable Future.
COMMENTARY
By Stephen R. Soukup, President and Publisher, The Political Forum
“Sustainability and the ‘Planning Paradox’”
As earnings season hits its peak and corporations are releasing all of the material information most shareholders need to make informed decisions about their ownership of those corporations and the construction of their portfolios, some companies are releasing additional data, data containing revelations that cut to the heart of fiduciary responsibility in the era of “sustainability” and ESG.
On July 1, for example, Google released its “2026 Environmental Report.” For environmentalists or advocates of sustainability-based investing, the report contained some good news. In 2025, Google reduced its Scope 1 and Scope 2 greenhouse gas emissions by about 2%. That’s no small feat. Google conveniently doesn’t say what that cut cost the company or whether it produced value for shareholders. Still, if one is looking at this solely from the perspective of sustainability, that’s a win. Unfortunately, even that was but a small win compared to the bigger losses: Google’s electricity usage increased by about 37%. Its Scope 3 emissions (value chain emissions) increased significantly – by 25%. And since Scope 3 emissions constitute roughly 80% of the company’s emissions, its total emissions went up considerably, and it was forced to admit that “reaching our climate moonshot is getting harder.”
The following week, Microsoft released its “2026 Environmental Sustainability Report,” and the story there was much the same: a great deal of high-minded rhetoric about the importance of saving the planet and leaving the environment better than how they found it and the ways the company has dedicated itself to being a good corporate steward, all coupled with admissions about increasing greenhouse gas emissions. Unlike Google, Microsoft didn’t find it necessary to back off its longstanding idealistic climate goals. The company’s Chief Sustainability Officer declared that Microsoft “remain(s) committed to our long-term ambitions.” Likewise, the report confirmed that Microsoft fully intends to be carbon-negative and water-positive while producing zero waste by 2030. Those are ambitious goals for a company whose Scope 2 emissions increased almost ten-fold, whose Scope 3 emissions rose 12%, and whose overall greenhouse gas emissions jumped by 25%.
To be fair, both Google and Microsoft have an excuse for their increasing emissions: AI. As any schoolboy knows, AI requires enormous amounts of energy, and the buildout of AI capacity requires even more. All of which is to say that it’s hardly surprising that these companies – and any tech companies, really – would see their emissions rise year-over-year. It’s just part of the process.
At the same time, however, tech companies aren’t the only companies releasing sustainability reports this month, and they aren’t the only companies showing massive growth in GHG emissions. Consider Starbucks, which released its Fiscal 2025 “Global Impact Report” two weeks ago. Six years ago, Starbucks – at one point, one of the “wokest” companies on the planet – pledged to reduce its Scope 1, 2, and 3 emissions by 50% by 2030. The good news for sustainability fans is that the largest coffee chain in the world has, indeed, reduced its Scope 1 and 2 emissions over the last six years, by a combined total of 17%. That’s not quite the progress one might hope for, given that the deadline for the 50% goal is now only four years away, but it’s progress, nonetheless. Of course, as appears to be the trend, Starbucks’ Scope 3 emissions have risen 8% since 2019, and since Scope 3 accounts for more than 90% of the company’s emissions, its total GHG footprint has jumped by 7%. Needless to say, the company conceded in its report that it is “actively reassessing” its climate commitments, especially its Scope 3 pledge.
All of this matters, of course, for a handful of reasons. First and most obvious, the regulatory regimes in both the European Union and the state of California will require all three of these companies – and thousands more – to report their emissions data annually, with the hope that poor showings result in investor backlash, either through harsh engagement or de-capitalization. Additionally, in the EU, under the Corporate Sustainability Reporting Directive (CSRD), companies will have to disclose whether they have a climate transition plan aligned with limiting warming to 1.5°C, and if they don’t have one, explain why and when they’ll adopt one. Sustainability-driven investors, especially those in Europe, will use all of this information to push companies to do what it is fairly clear they can’t do, or at least can’t do effectively. That will create significant issues going forward, pitting idealistic investors and government entities against resistant corporate managers and economic reality.
A second reason all of this matters is that it confirms the conclusion reached by many executives and theorists more than a half-century ago but which has largely been forgotten of late: corporate “strategic planning” is a mixed bag, at best. The “planning paradox” posits that “planning is necessary and important but is hardly sufficient for business success; [and] rigid adherence to prior plans can cause businesses to miss opportunities and engage in poor decision-making.” As I noted in The Dictatorship of Woke Capital, strategic planning is a long-standing ideal among businessmen and women, but one that is elusive. Indeed:
In a well-known article for the Harvard Business Review, management Professor Henry Mintzberg suggested that strategic planning in general suffered from three key fallacies: the fallacy of prediction, which, of course, rightly acknowledges that business managers are no different from anyone else and are thus unable to look into the future and see what it will bring; the fallacy of detachment, which describes the inherent difficulty in enabling plan-makers and plan-implementers to see events and processes from the same perspective, each with perfect knowledge of the other; and the fallacy of formalization, which is the fallacy common to all positivist endeavors, the presumption that the “system” can process corporate actions and goals better and more effectively than can a human, who is able to assess new information as it becomes available and adjust accordingly.
In other words, it is a fool’s errand to make grandiose promises and pledges, not knowing what the future holds. In 2020, Google and Microsoft had no idea what the AI revolution would bring, especially in terms of energy requirements. And neither, for that matter, did Larry Fink and BlackRock. More to the point, none of them knows any better what lies over the next event horizon or the one beyond that. Making promises, pledges, and investment decisions based on hope and ideology is absurd and immeasurably damaging to shareholders and fund-owners.
A final lesson here – drawn from the fact that every company is struggling with Scope 3 emissions – is that it’s nigh on impossible to control what your suppliers and your customers do. You can make some difference on the edges, but you can’t control wholesale behavior. Even with the power of the state behind them, countless authoritarians have learned this lesson. Pledging otherwise is not only foolish but dishonest. Going forward, companies that resist making over-broad long-term pledges or that take responsibility for and own up to mistaken pledges made in the past may have greater claim to being fiduciarily responsible to their shareholders than those that do otherwise.
And fiduciary investors would be wise to keep track of that.
