There´s a lot of money in corporate defined benefit (DB) plans, and it can make a difference how those assets are invested.

Cooper Abbott, president and chairman of Carillon Tower Advisers, notes that the Department of Labor (DOL) oversees employee benefit plans that represent approximately $10 trillion in combined assets under the Employee Retirement Income Security Act (ERISA).

Of this total, about $8 trillion is in mutual and other funds, and about $2 trillion is in directly held equities (i.e., equities not in funds). “There’s a lot of power in what investments are saying,” he says.

This summer, the DOL proposed a rule that addresses environmental, social and governance (ESG) investing in retirement plans. Abbott says the proposed rule is specific that plan sponsors should not invest in ESG vehicles for which the strategy subordinates returns or increases risks for nonpecuniary objectives.

Regulators and industry stakeholder have expressed concerns that plan sponsors invest in ESG funds based on fiduciaries’ or plan participants’ philosophies, rather than based on financial factors. “I think most DB plan trustees are looking at financial factors,” Abbott says. He notes that a divestment approach that the industry used to call SRI (socially responsible investing) is a different approach than an integrated ESG worldview.

“An integrated approach says no asset class out there is not fair game. If an investor wants to engage with energy companies, it can use assets to be owners and help companies make improvements,” Abbott says. “Divestment is more of a philosophical approach where the investor is on the outside looking in.

I don’t think using ESG is.” Carillon commented on the proposed rule and said the DOL is limiting how much of a “voice” investors have. “We do not see ESG considerations and returns as mutually exclusive. Secondly, in general, more choice is better for investors,” Abbott says.

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