On Friday afternoon, October 30, 2020 the Department of Labor (DOL) pushed through a new rule to undermine the ability of 401(k) and pension plans to include environmentally and socially responsible investments. The rule is clearly a pre-election political move against corporate responsibility, in line with Trump administration actions that have consistently rolled back protections against corporate misconduct. No evidence has been brought forward that this fiduciary change is needed.
The DOL offered a very short public comment period for the rule, which nevertheless generated overwhelming opposition -- 95% against -- from investors large and small and concerned stakeholders, including thousands of Green America members.
“This rule works against the well-being of investors, companies, communities, and other stakeholders and should be reversed,” said Fran Teplitz, Green America’s executive co-director for business, investing, and policy. Reversal would be possible by a new Administration, through Congress, or the courts. “It is absurd and unconscionable that the DOL even fails to take the climate crisis into account as a concern of investors seeking long-term value,” she added.
While not referring directly to “socially responsible investing” or as it’s called in industry terms “ESG (environmental, social, governance) investing” the rule restricts the use of investments that offer “non-pecuniary” benefits – demonstrating the DOL’s failure to understand that attention to the social and environmental impacts of companies has real life financial implications for investors and society.
As Jon Hale of Morningstar stated “Most of what this rule implies as being non-pecuniary benefits, in the case of sustainable or impact strategies, are actually long-term benefits that should ultimately bolster rather than hinder the returns of retirement plan participants and their beneficiaries.”
The rule opposes the direction of the investment industry as more and more individual and institutional investors choose funds that integrate financial, social, environmental, and corporate governance criteria. In fact, the multinational financial services giant UBS has just decided to recommend ESG investing over conventional investing to its clients globally -- including to its retirement plan clients.
Smart investors and fiduciaries will continue to see that corporate responsibility is a win for investors and society.