IPFI Statement on the proposed Department of Labor rule on ESG investing

The Department of Labor last week released a proposed rule on tax-qualified retirement plans governed by the Employee Retirement Income Security Act (ERISA) in order to determine the extent to which Environmental, Social, and Governance (ESG) considerations factor into investment decisions. The question at hand is whether the plan managers, bound by fiduciary duty to their beneficiaries, are sacrificing investment returns or increasing risks in order to meet ESG goals unrelated to the participant’s bottom-line financial interests.
Adherence to fiduciary duty is a cornerstone of pension fund management. Any effort to inject politics or political opinion into the management of other people’s money is plainly dead wrong. This is particularly true for the retirement monies of our first responders, our teachers, and the men and women who every day make our state and local governments function. Any effort to inject ESG or any political interest into the management of other people’s money should be treated as a violation of fiduciary duty. There are many laudable social initiatives that individuals, religious endowments, school endowments, and other private concerns may wish to consider. It is, however, never correct to impose those personal political opinions on pension funds.
Today, massive unfunded liabilities plague public pension plans across the country. However, even if they were all fully funded, injecting politics into their management would still be a gross violation of fiduciary standards. That America’s public pension plans may be over $10 trillion in the hole would seem to turn politician’s, and now apparently, banker’s efforts to politicize public pension fund investments from a fiduciary crime into a fiduciary blunder.
The Institute for Pension Fund Integrity (IPFI) takes no issue with ESG as a tool for corporate managers and boards of directors to utilize to make their enterprises faster, better, cheaper, safer, and more responsible to their shareholders and employees. The board room and the C-Suite is exactly where that consideration should reside. It should not be hijacked by activist politicians, bankers and proxy advisory firms, seeking a political agenda in the name of good governance.
We at IPFI applaud the Department of Labor’s efforts to clarify and correct guidance on the fiduciary obligations of pension fund managers as far as ESG investing is concerned, and we believe that ERISA must be modernized to ensure that fund’s investment strategies remain focused on fiduciary duty and the best risk adjusted return. We can only hope that public pension plans, who are not subject to ERISA, instead sign-on to IPFI’s Principles of Fiduciary Investing (PFI), which requires plan sponsors and managers to pledge unwavering commitment to fiduciary duty.