US. DOL Proposal Will Chill ESG Corporate Pension Investing, Advocates Say
Advocates of environmental, social, and governance (ESG) investing have decried the US Department of Labor (DOL)’s newest proposal as poison for sustainable investments in pension plans.
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On Tuesday, the DOL proposed a rule that said company defined benefit (DB) retirement plans have a fiduciary duty to beneficiaries, not to social causes advanced through ESG investing that could reduce returns or increase risk.
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“Private employer-sponsored retirement plans are not vehicles for furthering social goals or policy objectives that are not in the financial interest of the plan,” Labor Secretary Eugene Scalia said in a statement. Scalia added: “Rather, ERISA [Employee Retirement Income Security Act] plans should be managed with unwavering focus on a single, very important social goal: providing for the retirement security of American workers.”
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The proposal would only affect private employer plans, which have not been as active or outspoken about ESG investing as have some of their peers in endowments and foundations or in public pension funds. But ESG supporters say the proposal targets a growing trend in sustainable objectives, such as climate change and diversity, that they say do not run contrary to fiduciary considerations.
“The DOL proposal is out of step with professional investment managers, who increasingly analyze ESG factors precisely because of risk, return, and fiduciary considerations,” the Forum for Sustainable and Responsible Investment (US SIF), an advocacy group, said Wednesday in a response. “Generating more hurdles to the incorporation of ESG criteria will have a chilling effect, leading to plan participants losing access to ESG options—many of which have outperformed their indices over time and especially during the market shock related to COVID-19,” the response continued.
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