Some 95% of the Comments on the Labor Department’s Proposed ESG Rule Oppose it, an Analysis Shows

Some 95% of the comments on the Labor Department’s proposed rule limiting ESG (environmental, social, and governance) investments in retirement plans oppose it, according to an analysis by representatives of the sustainable investments industry.

In June, the Labor Department invited comments on a proposal to require retirement-plan fiduciaries to choose investments “based solely on financial considerations,” a move aimed to slow the interest in ESG investing, analysts said. There is $10.7 trillion in private pension plans.

During the 30-day comment period, which ended on July 31, the proposed rule drew 8,737 comments, according to the analysis. The authors downloaded all of them, and characterized each as being in favor of or opposed to the proposal, as well as those that took neutral or mixed positions.

The authors of the analysis included representatives from Impax Asset Management ; Morningstar, the trade group US SIF, the Intentional Endowments Network, advocacy group Ceres, the AFL-CIO, and the Interfaith Center for Corporate Responsibility.

The Labor Department, which hasn’t issued its ruling yet, did not immediately respond to requests for comment.

The comments were “overwhelmingly opposed … with 95% of commenters expressing their opposition, only 4% expressing their support and 1% expressing neutral views or recommending changes without clearly expressing support or opposition,” according to the analysis. The vast majority of those commenting were individuals who expressed views in a single sentence or paragraph, or signed on to petition letters sponsored by Green America and others.

It is likely that many financial advisors are included in this group, the authors wrote. Among individuals, some 96% of them opposed the rule.

The federal agency also received more detailed comments from companies, organizations, and professionals. Of these, 81% opposed the rule, 14% supported it, and 5% expressed mixed or neutral views.

Among investment firms, 94% were opposed, from asset managers focusing on ESG but also from large conventional asset managers like BlackRock, Fidelity, State Street Global Advisors, T. Rowe Price, and Vanguard.

Non-investment-related groups and organizations, including advocacy groups and trade organizations, were 57% opposed. Among the organizations that support the rule were the American Conservative Union, the National Association of Manufacturers, and the National Taxpayers Union.

The proposed rule didn’t show that a problem exists, and “did not establish that retirement plan fiduciaries are misusing ESG or that they are selecting investments that give up financial returns in favor of nonfinancial benefits,” the authors wrote. Moreover, it dismissed research showing that ESG is relevant in financial decision making, according to many comments that referenced the work of the Sustainability Accounting Standards Board. The commenters disputed the assumption that ESG funds give up financial returns.

“ESG data can be incorporated across asset classes in both active and index investment strategies to give a clearer picture of the financial risks and opportunities inherent in a portfolio,” BlackRock wrote in its comment letter.

Among other things, the proposal would exclude ESG investments as a default alternative in 401(k) plans, even as it allows complex investments like private equity. Some comments noted that excluding ESG funds could hurt beneficiaries.

“In fact, fiduciary duty ought to require the consideration of ESG in Erisa plans, not restrict it,” the authors wrote.

“This breakdown of the letters provides a clear and grounded approach” to the Labor Department, says Bryan McGannon, director of policy and programs at US SIF.

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