Socially Responsible Investing Should be a Fiduciary Requirement

Submitted by Mary Meade on July 20, 2020
Photo by Roberto Júnior on Unsplash

Following is an excerpt from the letter that Fran Teplitz, Green America’s Executive Co-director and Director of the Green Business Network, submitted to the Department of Labor (DOL) on July 21, 2020 in response to the agency calling into question the ability of retirement plans to include socially responsible investing criteria.  Investors have been integrating social, environmental, and corporate governance considerations into their investment decision-making for decades, to the benefit of investors. The DOL is accepting public comments through July 30:

Green America is a national membership organization dedicated to building a marketplace that fully takes into account the financial, social, environmental, and corporate governance factors that contribute to the well-being of our economy, workforce, communities, and the environment.

We represent 200,000 individual consumers and investors as well as 2,000 businesses and investment firms that operate on a triple bottom line, i.e., seeking positive financial returns while supporting social justice and environmental sustainability.

Green America believes that the Department of Labor’s proposed rulemaking released on June 23, 2020 to change the fiduciary standard for retirement plans governed by ERISA is fundamentally unsound and a danger to investors. The proposal represents a retreat from best practices and the fact that social, environmental, and corporate governance issues are financially material and need to be assessed for risk and opportunity.

Nationally and globally, investment professionals and their clients are increasingly integrating ESG criteria into their investment decision-making precisely to achieve the best financial outcomes over the long term. Financial planning for retirement is a long-term endeavor and with the fate of individuals, families, and communities at stake, it requires comprehensive consideration of all factors affecting risk and return. This is the basis for ESG investing, also known as socially responsible investing (SRI).

If the Department of Labor chooses to take action to update fiduciary requirements at this time, the preponderance of research points to the need for the Department of Labor to be requiring, not questioning, inclusion of ESG factors in ERISA-governed plans in order to promote the strongest returns. 

As recently as April 3, 2020, a Morningstar article validated the positive returns of ESG funds in the current volatile market: “Sustainable Funds Weather the First Quarter Better Than Conventional Funds.” Looking over a broader time horizon, a new report issued last month (June 2020), “Sustainable Investment: Exploring the Linkage between Alpha, ESG, and SDGs,” also affirms that ESG-based investments can outperform their benchmarks. The Charles Schwab website also states: “SRI is a widely accepted investment approach that may allow investors to align their investments with their values without sacrificing performance” and Schwab research has found that over the long term, SRI approaches have tended to perform very similarly to non-SRI approaches, and with similar levels of volatility.”

These are just a few of the multitudes of studies over the decades that have demonstrated the ability of ESG funds to match or outperform their conventional peers.  

Given the profound impacts of climate change, the loss of biodiversity, human rights impacts, and a myriad of supply chain issues and other concerns with market implications, it is imperative to continue to allow all financially material information to inform the investment process to ensure the appropriate due diligence.

Thank you for your attention to this important matter.  

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