Senators demand breathing space for US investors on ESG restriction

9 July 2020

Elizabeth Pfeuti

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Investors could get more time to pore over a controversial new Department of Labor (DOL) rule that could have severe negative implications for US ESG investing, after two Democratic lawmakers have stepped in.

As it stands, the public have just 30 days to comment on the recently-announced rule, which Senator Patty Murray and Representative Bobby Scott have complained is not enough time.

In a jointly-written letter, the pair have said the 30-day comment period was “an insufficient time for the American public to review and respond to a complex, 123-page proposed rule”.

U.S. Representative Bobby Scott

The pair also wrote that the DOL had a duty to the public to “meaningfully engage with people about their concerns” instead of “rushing through a rule that would seriously damage the retirement security of people across the country”.

Announced at the end of June, the rule proposed by the DOL would see US pension funds inhibited from making ESG investments unless they could satisfy that this was for a purely financial return.

Essentially, the amendment would stipulate that the risk mitigation or opportunity of an ESG-focused investment must be clear enough for it to fall within the generally accepted standards around asset management and portfolio strategies. Otherwise it would not be classed as targeting financial return or risk management.

In their letter, the lawmakers have noted that the Obama administration provided extensions on the comment periods for fiduciary rules proposed in 2010 and 2015. As a result, Murray and Scott are asking for at least 60 more days for investors to have a say.

The DOL’s stance (announced with Secretary of Labor Eugene Scalia saying: “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”) is very different to that being adopted in many other markets.

For instance, in the UK regulators are pressing forward with guidelines on how asset managers and other institutional investors need to identify, monitor and manage climate change risk in their portfolios, with their actions also overseen by a multi-regulator taskforce.

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