Better Markets filed a comment letter with the Department of Labor in response to the agency’s proposal to remove barriers instituted during the previous Administration that limited plan fiduciaries’ ability to consider climate change and other environmental, social, and governance factors when they select investments and exercise shareholder rights.
The Department, under the prior administration, sought to unnecessarily and materially curtail a plan fiduciary’s consideration of these ESG factors in selecting retirement plan investment options. Specifically, it generally required that plan fiduciaries consider only “pecuniary factors” when selecting investments and adopted provisions that chill or disfavor the exercise of proxy voting rights by plan fiduciaries, in part by belittling those rights and in part by overburdening them.
Why It Matters: The way companies address environmental, social, and governance issues has drawn steadily increasing attention in recent years. It has now become the subject of keen interest among investors, public interest advocates, private companies, the financial sector, and regulators both here and abroad. Evidence shows there is a demand for sustainable investment options and that making them more available would actually increase contribution rates in retirement plans. Moreover, recent studies support the conclusion that the use of ESG factors in selecting investments improves investment returns, especially over the long term.
What We Said: The Proposed Rule is an important step forward not only in serving the best interests of retirement savers but also in helping solve several major social policy challenges, including climate change, economic inequality, and corporate governance failures that harm workers, communities, and other stakeholders.
Bottom Line: Better Markets urges the Labor Department to finalize the Proposal, without diluting its provisions, to provide needed clarity for the benefit of fiduciaries; to serve the best financial interests of plan participants and beneficiaries; and as expressed in the Release, to better promote broader economic and societal goals relating, for example, to climate change, worker productivity, and corporate manager accountability.