ESG Investing Under ERISA
Yale Journal on Regulation Bulletin, Vol. 38, page 112 (2020).
22 Pages Posted: 22 Mar 2021
Date Written: March 21, 2021
Abstract
It is important to recognize and accept that when we talk about Environmental, Social, and Governance (“ESG”) investing under ERISA, it is the fiduciary duties of plan managers to which our discussion is directed. It is not the desires of those who advocate for an increased use of ESG investing. Given this understanding of fiduciary duty under ERISA, I 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 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 cases that have subsequently interpreted ERISA.
Keywords: ERISA, ESG, fiduciary duties, plan managers, DOL
JEL Classification: K2, K22,H72, H75, J26, J32
Suggested Citation: Suggested Citation