Former Clinton Administration Treasury Official Voices Support for Dept. of Labor ESG Rule

With the comment period recently closed on the newly proposed Department of Labor rule on ESG investments in ERISA-backed pension funds, attention now turns to the evaluation process. Over the next several months, regulators will assess the thousands of comments submitted by organizations and individuals across the country. Attention has also been growing on this issue on Capitol Hill, where both Republicans and Democrats are looking to place their stamp on the eventual final rule.

One prominent individual who has weighed in on this proposal is Alicia Munnell, who served as the Assistant Secretary of the Treasury under President Clinton and currently serves as the director of the Center for Retirement Research at Boston College.  In a recent op-ed in MarketWatch, Dr. Munnell voices her support for the rule, noting the downsides of ESG prioritization and need to maintain fiduciary responsibility in pension fund investment.

Munnell notes that:

“Pension fund investing is not the place to solve the ills of the world. ESG investing — which involves environmental, social, and governance factors — is a diversion that enriches financial managers, reduces participants’ retirement investment returns, and makes people think they are addressing a problem without doing anything substantial. No one can seriously think that stock selection is going to fix climate change.”  

Noting the history of the Department of Labor’s actions to clarify ESG investment guidelines, she applauds the current proposal as a needed next step. Perhaps most importantly, she also mentions the need to expand the guidelines set forth by the Department for public pension plans outside the jurisdiction of ERISA:

“While the proposed rule is aimed at private pension plans, state and local plans, to date, have accounted for the bulk of the social investing activity. Screening pension fund investments has not been an effective means of achieving social goals, and it distracts plan sponsors from their primary purpose — providing retirement security for their employees.”

As these debates go forward, the Institute for Pension Fund Integrity will continue to press regulators and lawmakers on the need to keep politics out of pension investment. This proposed rule is a key step toward ensuring transparency and accountability in ERISA-backed pension funds, and it is our hope that Dr. Munnell’s comments are given the consideration that they deserve.