Marty Walsh is a champion of sustainable investment

Controversial rules that make it harder for US pension plan fiduciaries to make sustainable investment decisions could be reviewed if President Biden’s Labor Secretary nominee takes the helm. Marty Walsh, a Democrat and current Boston’s mayor, is a champion of environmental, social and governance (ESG) issues and recently increased the city’s own sustainable investment mandate.

Walsh, who is “extremely concerned” about the impact of the rules on financial factors in selecting plan investments and proxy voting, said if he becomes Secretary of Labour, he will call on the Employee Benefits Security Administration to conduct a review.

The rules were finalised by the Department for Labor towards the end of last year under the Trump administration and came into force just days before President Biden took office.

Under the financial factors rule, Employee Retirement Income Security Act (ERISA) plan fiduciaries are banned from investing in ‘non-pecuniary’ vehicles that sacrifice financial returns or take on additional risk.

The proxy voting rule requires pension plans to vote on shareholder proposals only when there is a clear economic reason, rather than issues such as climate change. Critics say the rule makes it harder for investors to cast their ballots on many corporate proxies.

Responding to a question asked by Washington Senator Patty Murray, chairwoman of the Senate Health, Education, Labor and Pensions Committee,  Walsh wrote: "I am especially concerned that the recent rules could make it harder for plans to make investment decisions based on ESG factors, even when those factors are related to the economic wellbeing of plans and their participants.”

He added that given ERISA's overarching goal of protecting plans and their participants, that is “reason enough to review the rule-makings.”

Under Walsh’s mayorship, Boston has allocated in total around $200m to ESG investments since 2019, and most recently invested $50m in short-term corporate bonds and notes screened for positive ESG factors.

In December 2020, the city issued its first green and social municipal bonds to raise capital for energy efficiency and affordable housing.

Walsh’s Secretary of Labor nomination awaits confirmation by the US Senate.