Ceres, along with major pension funds and other fiduciaries, are very disappointed by today’s new rule announced by the U.S. Department of Labor that would prevent fund managers from adequately considering environmental, social and governance (ESG) risks in their investment decisions. The final ruling comes after the agency received more than 8,700 comments in opposition to the proposed changes.
“This is another harmful action by the Trump administration, at a time when the global climate crisis looms large as another systemic risk upending lives, livelihoods, and causing deadly devastation and damage,” said Mindy Lubber, Ceres CEO and President. “Today’s decision is unwelcome by pension funds and other fiduciaries and runs counter to global market trends and the mainstream U.S. and global practice of integrating ESG factors into investment decisions.”
The rule, Financial Factors in Selecting Plan Investments, adopted by the DOL’s Employee Benefits Security Administration, would change standards allowed for considering material ESG risks, differentiating them from other financial information covered by the Employee Retirement Income Security Act (ERISA). It specifically requires that ERISA plan fiduciaries “select investments and investment courses of action based solely on financial considerations relevant to the risk-adjusted economic value of a particular investment or investment course of action.
“This decision will impair the ability of pension funds to consider the short and long-term financial risks posed by extreme weather, water shortages and human rights abuses in performing their investment analysis and allocations,” added Lubber. “It will also likely reduce the availability of ESG funds at a time when investors are clamoring for more environmentally and socially responsible investments, and when a renewed focus on sustainable economies and ecosystems is on the rise in the mainstream.”
The DOL is imposing these restrictions at a time when ESG investing is rapidly growing and more fully embraced by mainstream global finance and investment organizations. Sustainable investing assets in the U.S. reached $12 trillion in 2018, up 38 percent from 2016, according to a recent US SIF Foundation’s Trends report. Moreover, ESG investments have been outperforming broader index funds so far in 2020, according to studies by S&P and Morningstar.
The DOL received more than 8,730 comments in the proceeding, including one from Ceres, which works with a network of 175 investors with a combined $30 trillion in assets under management. An analysis found that 95 percent of comments submitted were in opposition to the rule. Ceres comment letter can be found here.
Ceres is a sustainability nonprofit organization working with the most influential investors and companies to build leadership and drive solutions throughout the economy. For more information, please visit ceres.org and follow @CeresNews.