The U.S. Impact Investing Alliance submitted a comment letter to the Department of Labor (DOL) today in opposition to the proposed changes to the fiduciary standard for ERISA-regulated retirement plans. The Alliance and its members strongly disagree with the substance of the DOL’s proposal, and we urge regulators to reconsider their foundational assumptions that either lack supporting evidence or are in direct contradiction with broadly accepted investment practices and theories.
The proposed rule is based on the presumption that ESG factors are often immaterial and can lead to underperformance when incorporated into investment strategies. In fact, recent evidence suggests the opposite is true—ESG is often financially material, frequently leads to outperformance and helps to mitigate risk and uncertainty over the long-term. The Alliance believes that considering material ESG factors is in alignment with fiduciary duty, and that discouraging such considerations could have harmful effects on plan beneficiaries.
The Alliance also believes the proposed rule is arbitrarily burdensome for fiduciaries and carries serious anti-competitive implications. By dramatically limiting access to the growing universe of ESG funds and products, the proposal will ultimately result in increased costs for plan sponsors and their beneficiaries and potentially lower returns as well. And the DOL’s proposal singles out 401(k) holders in particular with proposed rules that will make it harder and more costly for plan sponsors to offer individuals robust ESG investment alternatives.
Finally, it is important to mention that moving forward with such a hastily constructed rule would have drastic implications for plan fiduciaries and beneficiaries in the middle of a global pandemic and economic crisis. In fact, the ongoing crises we face today only reinforce the importance of considering long-term material ESG factors when making investment decisions.
We call on regulators to suspend this rulemaking until well after the COVID-19 crisis has been resolved, and we encourage the DOL to use the extra time to engage with and listen to market participants, the vast majority of whom are united in opposition to this rule and recognize the materiality of ESG in protecting the retirement security of millions of Americans.