An overwhelming majority (95%) of comments on the Department of Labor’s proposed rule around ESG (environmental, social and governance) investment decisions in private retirement plans were opposed, according to a new analysis by Morningstar, US SIF: The Forum for Sustainable and Responsible Investment and other organizations. The rule would put guardrails around the use of ESG in these retirement plans, requiring more analysis and documentation.
Most of the 8,700 public comments on the proposed rulemaking were from individuals, the report found, 96% of which were opposed. But opposition was also high among investment firms. Of the 229 comments from investment professionals, 94% were opposed, 2% were in favor and 4% were mixed or neutral. Only one asset management firm was in favor, and 44 of the 46 comments from financial advisors were in opposition.
The report found that nearly all supportive comments came from conservative trade associations and policy advocacy groups, including the American Conservative Union, American Legislative Exchange Council, National Association of Manufacturers, National Taxpayers Union, National Shooting Sports Foundation, and the Western Energy Alliance.
“Generating more hurdles to the incorporation of ESG criteria will have a chilling effect, leading to plan participants losing access to ESG options---many of which have outperformed their indices over time and especially during the market shock related to COVID 19,” said Lisa Woll, CEO of US SIF. “Limiting plan participant options and diversification opportunities should not be the role of the Department of Labor.”
Under the rule, plan fiduciaries could not offer ESG investment vehicles that knowingly heighten fees, lessen returns or increase risks for the purpose of achieving nonfinancial goals. Plan advisors and sponsors would still be able to consider ESG factors as tiebreakers among equivalent alternative investments.
In addition to US SIF and Morningstar, other organizations that participated in the analysis include Ceres, Intentional Endowments Network (IEN), the AFL-CIO, the Interfaith Center on Corporate Responsibility (ICCR) and Impax Asset Management.