EBSA issues new guidance on ESG, shareholder engagement by plan fiduciaries
This past Monday, the U.S. Department of Labor’s Employee Benefits Security Administration (EBSA) released a Field Assistance Bulletin (FAB), which advised that fiduciaries of ERISA covered plans must avoid too readily treating ESG issues as being economically relevant to any particular investment choice.
It further advises that ERISA does not necessarily require plans to adopt investment policy statements with express guidelines on ESG factors.
Guidance from the DOL published in 2015, which acknowledged that ESG factors can have a financial impact on retirement plan investments. IB 2015-01 stated that when ESG factors have economic value, they are ‘more than just tie-breakers, but rather are proper components of the fiduciary’s analysis of the economic and financial merits of competing investment choices.’
Similarly, in 2016, the Department issued IB 2016-1, which confirmed that ESG issues were consistent with shareholder engagement under ERISA. The PRI strongly supports the IBs and previously released a legal perspective on IB-2015-01.
The global investment community, including investors based in the US, have increasingly come to recognize the materiality of ESG factors. Numerous studies in the last few years from Harvard, MSCI, the CFA Institute and others, have clearly demonstrated that looking at ESG factors as part of the investment decision making process can translate into more effective risk management, which improves investment returns.
Despite the newly issued FAB, we remain confident that US investors will continue to incorporate ESG factors into their decision-making in order to attract investment capital, generate long-term growth and better manage portfolio risks. While the DOL’s decision to release the FAB could generate unnecessary confusion for plan fiduciaries, no one should doubt the benefits of ESG integration. The PRI has published multi-year research, including legal analysis, on fiduciary duties and ESG integration, with a focus on the US market, in addition to a briefing paper looking at the benefits of ESG integration to investment outcomes in the US. The research concludes that fiduciaries must have a process in place to consider all long-term material factors, including ESG factors.