Washington, DC – Over the past month, the U.S. Department of Labor has solicited input on a proposed regulation concerning environmental, social, and governance (ESG) investments and their role in pension funds overseen by the Employee Retirement Income Security Act (ERISA). Under consideration is whether 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.
This week, IPFI advisory board members Kevin O’Connor and Richard Brower submitted comment letters in support of this new rule. It is our hope that over the next several days, leaders in business and public policy throughout the country will voice support of this proposal as well through comments.
Kevin O’Connor, a former trustee of the Baltimore County Employees Retirement System, notes in his letter that “in recent years, ESG principles and ESG-focused investment products have gained traction among investors, due in large part to outside pressure from individuals seeking to boost specific political or environmental goals. While individual investors, endowments, and corporations should be free to pursue whatever investment strategy they see fit based on their needs, the unique nature of pension funds requires that fund managers steer clear of any political agenda.”
Sharing a similar sentiment, Richard Brower, the former Vice Chairman of the New York City Fire Department’s pension fund, says in his letter that “pension beneficiaries have little to no control over the investment of their retirement money. As such, we owe it to them to manage their funds with the greatest care and with returns as the highest priority, rather than push a political agenda which may not represent the beliefs of the people whose money is being invested.”
The Institute for Pension Fund Integrity believes that ERISA must be modernized in order to set in stone the underlying fiduciary principles that have been the cornerstone of responsible pension management. While individual investors, endowments, and corporations should be free to pursue whatever investment strategy they see fit based on their needs, the unique nature of pension funds requires that fund managers steer clear of any political agenda. As stated in the proposed rule, “it is unlawful for a fiduciary to sacrifice return or accept additional risk to promote a public policy, political, or any other nonpecuniary goal.”
It is with great anticipation that we await the Department of Labor’s final determination for this rule. Ultimately, it is our hope that this change will come as part of a greater effort to maintain pension funds’ independence from politics and ensure a secure retirement for all Americans.