Sokol & Hawley on Toughened DOL ESG Fiduciary Standards

Fiduciary duty is embedded in common law and that provides a framework for how trustees govern pension assets. In the forthcoming Responsible Investor Handbook, distributed by Greenleaf Publishing, we report that, outside the U.S., modernized laws drive the considerations of ESG and other non-financial issues in the management of pension assets or by investment funds.

"For example, the U.K. Pensions Act (2000) requires pension funds to disclose how they account for sustainability factors in constructing their investment portfolios. Germany requires the use of sustainability criteria as part of the fiduciary's duty, and France requires public pension funds to disclose how their investment policy guidelines address social and environmental issues. Australia's Financial Service Reform Act requires superannuation (i.e., retirement) and mutual funds to disclose the extent to which ESG considerations are taken into account. South Africa mandates that institutional investors, including pension funds, 'before making an investment into and while invested in an asset, consider any factor which materially affect the sustainable long-term performance of the investment, including those of an environmental, social and governance character (Caplan, et al, 2013)."

For legal eagles, a fresh look at the U.S. Department of Labor (DOL) Interpretive Bulletin 2015-1 issued on October 22, 2015, reveals an even tougher fiduciary rule than previously reported. DOL 2015-1, a guidance initially thought to focus solely on economically-targeted investments (ETIs), actually mandates that investors pay more attention to and consider environmental, social and governance (ESG) matters. The new rule, thus, strengthens the sustainable investments cause. It lays out the legal fiduciary framework that pension fund managers and external investment managers, alike, will have to adhere to responsible investment principles.

As labor lawyer Bill Sokol reported, at the time, "In a long awaited Interpretive Bulletin issued October 22, 2015, (IB 2015-01) the U.S. DOL finally killed a 2008 Bush Bulletin that 'chilled' attempts by pension funds to consider collateral benefits of investments which might include creating more Union jobs, protecting the environment, and in other respects being 'socially responsible' investments."

In an exclusive piece for Heartland, Mr. Sokol provides a harder look at DOL 2015-1 and how it is significantly different from the original Clinton Administration-era ETI rule, DOL 94-1.

And we're also sharing an excellent summary article by author Jim Hawley on the DOL Guidance and his review of the evolving fiduciary standard and ESG materiality.

We think you'll enjoy these fresh takes on this important development by these progressive West Coast thought leaders.

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