Washington, DC – IPFI advisory board members have submitted comment letters concerning a proposed regulation on environmental, social, and governance (ESG) investments by the Department of Labor. The letters express support for the revision to the Employee Retirement Income Security Act (ERISA) which would require ERISA-qualified asset managers to base investment decisions solely on financial considerations rather than any sort of alternative agenda. The question at hand is whether the plan managers, bound by fiduciary duty to their beneficiaries, are sacrificing investment returns or increasing risks to meet ESG goals unrelated to participant’s bottom-line financial interests.
In his letter, IPFI President Christopher Burnham writes, “[The Department of Labor has] made it clear that plans are forbidden to make nonpecuniary investments. Individuals are free to invest for their personal portfolios in companies that elevate social values. But fiduciaries have a different obligation, a ‘duty of loyalty’ to all of their beneficiaries. They cannot allow nonpecuniary preferences of any kind to influence investment decisions.”
Following up in an newly released op-ed in Forbes, Burnham notes that “our concern is that the people who are investing on behalf of millions of current and future retirees aren’t living up to their fiduciary responsibility by choosing stocks and bonds on the basis of ideological or social preferences…It is time to reclaim ESG as a force for good, not an excuse to promote a political agenda.”
Former Ohio State Treasurer and IPFI board member Ken Blackwell argues, “Pension fund managers need to be reminded that they are charged with acting on behalf of individuals who sacrificed a portion of their wages every payday with the expectation that their money would be handled with care, not used to promote the interests of political actors…The proposed rule change is an important step towards fulfilling these obligations.”
The Department of Labor should be applauded for taking this necessary step toward clarifying and correcting guidance on the fiduciary obligations of pension fund managers as far as ESG investing is concerned, and it is our hope that leaders in business, finance, and public policy will voice their support for this initiative. As Labor Secretary Scalia noted, this rule aims to “remind plan providers that it is unlawful to sacrifice returns, or accept additional risk, through investments intended to promote a social or political end.”