The Department of Labor’s proposed regulation clarifying investment duties of ERISA plan fiduciaries in relation to environmental, social and governance (ESG) investing is already drawing fire from Sen. Patty Murray (D-WA).
Murray, ranking member of the Senate Health, Education, Labor and Pensions (HELP) Committee which has primary jurisdiction over ERISA-related issues, argues that the proposed rule would discourage financial advisors from considering ESG criteria and ignores findings that show ESG investments outperform traditional investments.
“We know that by focusing on the ‘triple bottom line’—profits, people, and the planet—financial advisors can, and already do, help their clients do well while doing good. A rule like this, which chills investments that take into account valuable qualities like diversity or sustainability, isn’t about protecting retirees,” Murray stated in a release.
Murray contends that, even though financial advisors already consider ESG factors while meeting their fiduciary obligations, Labor Secretary Eugene Scalia “incorrectly suggested” that ESG vehicles perform worse than non-ESG investments. Citing a recent Morgan Stanley white paper that cites data from Morningstar, Murray suggests that the evidence shows that investments based on ESG goals not only provide comparable returns and potentially lower risk to traditional funds, but actually have outperformed such traditional investments in the past several years.
For what it’s worth, Scalia had stated in the press release accompanying the DOL’s proposed regulation that, “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. Rather, ERISA plans should be managed with unwavering focus on a single, very important social goal: providing for the retirement security of American workers.”
The DOL’s proposal, released June 23, would make five core additions to the existing regulations by, among other things, codifying the department’s position that ERISA requires plan fiduciaries to select investments based on financial considerations relevant to the risk-adjusted economic value of a particular investment.
The proposal also acknowledges that ESG factors can be pecuniary factors, but only if they present economic risks or opportunities that qualified investment professionals would treat as material economic considerations under generally accepted investment theories. And it adds new regulatory text on required investment analysis and documentation requirements in what it characterized as “the rare circumstances when fiduciaries are choosing among truly economically ‘indistinguishable’ investments.”
DOL’s proposed regulation is subject to a 30-day comment period after publication in the Federal Register.
We may hear more from Sen. Murray on this subject and other current retirement-security policy proposals in Washington, as she is a scheduled keynote speaker for the 2020 NAPA DC Fly-in Forum, July 21-22, 2020.