U.S. Impact Investing Alliance Applauds Regulator’s Step Toward Modernized Fiduciary Duty

The U.S. Impact Investment Alliance praised proposed rules published today by the Department of Labor, which provide greatly improved guidance to the managers of 401(k)s and private pension plans, governed under the Employee Retirement Income Security Act (ERISA). Specifically, the rules acknowledge the clear and growing evidence of the financial risks posed by the climate crisis as well as the material importance of corporate America’s governance, workforce and other environmental, social and governance (ESG) practices.

“Retirement savers have collectively invested trillions of dollars as individuals and through their places of work,” said Fran Seegull, President of the U.S. Impact Investing Alliance. “Today’s new rules from the Biden-Harris Administration make clear that the stewards of these assets should be taking into account all material factors, including ESG factors, when making investment decisions.”

Under the ERISA statute, sponsors of individual and workplace retirement plans have a fiduciary duty to manage worker and retiree assets in a way that maximizes financial return. But guidance from the previous administration set unclear and inconsistent standards for when and how these fiduciaries could include ESG factors in their investment analyses, despite robust evidence of their financial relevance. The previous administration also placed significant restrictions on when and how retirement plan managers should vote on shareholder proposals or engage corporate managers.

“The new proposal makes clear that workers must have a voice in how their savings are invested and how the companies that they jointly own are managed,” Seegull continued. “We are further pleased to see the Department recognized the growing demand – especially among younger workers – for more sustainable and impact-oriented investment options that still align with long term financial performance.”

The proposed rule provides additional clarity about how fiduciaries can include financially prudent investment options that also take broader sustainability or societal concerns into account. The public will have 60 days to provide comments on the proposal, before the Department moves to draft a final rule.

“This proposal is an important step toward modernizing our notions of fiduciary duty and the materiality of impact factors. The U.S. Impact Investing Alliance will be carefully analyzing the proposal and offering comments on how this and future actions by the Department of Labor can be made stronger still,” Seegull continued. “Today is a clear indication that the Biden-Harris Administration takes seriously the need to reexamine the economic structures that make up American capitalism to ensure that it works for all.”