Fund Firms Voice Opposition to DOL’s Proposal on ESG Investing

The Department of Labor in June proposed amendments to regulations under ERISA that would effectively bar retirement plan fiduciaries from considering non-financial factors in making investment decisions for retirement plans, including 401(k)s. “Private employer-sponsored retirement plans are not vehicles for furthering social goals or policy objectives that are not in the financial interest of the plan,” said Secretary of Labor Eugene Scalia in the DOL’s release. “Rather, ERISA plans should be managed with unwavering focus on a single, very important social goal: providing for the retirement security of American workers.” The DOL has since then received more than a thousand comments on its proposal, many criticizing the move.  BlackRock, State Street and Franklin Resources were among commenters voicing concerns about the proposal. BlackRock said it was concerned that the DOL’s proposal goes far beyond clarifying the agency’s position that plan fiduciaries must prioritize the economic interests of plan participants and beneficiaries. “The Proposal creates an overly prescriptive and burdensome standard that would interfere with plan fiduciaries’ ability and willingness to consider financially material ESG factors, regardless of their potential effect on the return and risk of an investment,” BlackRock wrote.  State Street Global Advisors in its letter questioned the DOL’s legal reasoning and said the terms of the proposal will leave asset managers and other plan fiduciaries with substantial legal uncertainty around the way in which they must perform their duties. “By broadly prejudging ESG integration as harmful and subjecting it to special scrutiny, the proposal will have the effect, perhaps unintended, of rendering ESG integration presumptively imprudent.” This presumption, State Street wrote, will pressure fiduciaries to categorically avoid investment approaches that integrate ESG considerations, even when such investments are otherwise prudent choices.