Deep Dive Episode 122 – New Labor Department Rule: Taking on ESG Investment Risk to American Retirement Security
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A sustained effort by activist investors to align corporate policy and investing with a progressive policy agenda could be shortchanging the retirement savings of millions of Americans. Data show that investments tied to perceived environmental, social, and governance principles, or ESG, generally offer lower yields than the S&P 500 benchmark, but activists are pushing to use trillions of dollars in pension and retirement plans to discriminate against various industries. The trend could have profound implications for public and private pensions programs and other retirement savings plans. ESG investing might also pose a challenge to the fiduciary responsibility of asset management professionals to act in the best financial interests of the people they serve, a bedrock concept in financial planning.
The U.S. Department of Labor is preparing to ensure ESG investing does not undermine protections enshrined in the Employee Retirement Income Security Act (ERISA). A proposed rule would codify in law that asset managers must uphold their fiduciary responsibility when considering ESG investment decisions. The rule states: “It is unlawful for a fiduciary to sacrifice return or accept additional risk to promote a public policy, political, or any other nonpecuniary goal.” A comment period ends on July 30.
In this live podcast, J.W. Verret discusses the Labor Department’s proposed rules and their implications for retirement security.
Associate Professor of Law
Antonin Scalia Law School
Federalist Society’s Labor & Employment Law Practice Group