Comment Letter to DOL: ESG Investing Under ERISA

Abstract

The Department of Labor (“DOL”), through its administration of ERISA, has a critical role to play in the regulation of employee pension benefit plans. Most importantly, the DOL is tasked with enforcing the fiduciary duties of ERISA plan managers. Under ERISA, plan managers owe the strictest duties of loyalty and care to their participants and beneficiaries. They are to be constantly guided by the fiduciary principles of “solely in the interest of the participants and beneficiaries” and for the exclusive purpose of providing financial benefits to them. Given this understanding of fiduciary duty under ERISA, it is easy for me to strongly support the approach taken by the DOL in its recently proposed rule, Financial Factors in Selecting Plan Investments. I agree with the DOL when it states that “ERISA requires plan fiduciaries to 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,” “plan assets may not be enlisted in pursuit of other social or environmental objectives,” and “ERISA plan fiduciaries may not invest in ESG [Environmental, Social, and Governance] vehicles when they understand an underlying investment strategy of the vehicle is to subordinate return or increase risk for the purpose of non-pecuniary objectives.” I also find the proposed rule to be consistent with federal court cases that have subsequently interpreted ERISA. Despite ERISA being clear in what it requires of its fiduciaries, many commentators will completely disagree with the analysis provided here and, more importantly, continue to be vigorously opposed to the proposed rule. I view it as a clash between the personal desires of some commentators and what ERISA actually provides. If these commentators truly want to implement their personal desires, they have but one option: to lobby to change the statutory law. But until then, as with the DOL’s proposed rule, they must respect what the current law clearly and unambiguously provides. In sum, I strongly support the DOL’s approach in the proposed rule and hope that my observations and recommendations will assist in the process of its finalization.