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The Sustainable Investment Policy Act

Congressman Andy Levin MI-09

(Congressman Levin plans to introduce this Act in the near future.)

The purpose of the Sustainable Investment Policy Act is to require retirement investors and fiduciaries to consider environmental, social, and governance—or “ESG”—factors when making investments that are covered by The Employee Retirement Income Security Act of 1974 (ERISA) and the Investment Advisers Act of 1940. Considering ESG factors is integral to fiduciary duty, because those factors help ensure the long-term sustainability of investments, without which Americans’ retirement security cannot be guaranteed.

The bill outlines six categories of ESG factors investors must consider and make clear to retirement plan beneficiaries. They’ll need to consider what the investment in question means for:

1. Worker wages, compensation, benefits and protections;

2. Worker rights, corporate decision-making, and collective bargaining rights;

3. Environmental risks;

4. Tax practices, including country-by-country tax reporting by companies/funds invested in;

5. Due diligence regarding supply chain management, including human rights and worker compensation considerations—something that is so important right now as we learn more and more about how forced labor in China’s Xinjiang Uygur Autonomous Region has been used by U.S. brands; and

6. The incorporation of sustainability preferences held by the plan’s beneficiaries, regardless of whether those preferences are financially material. That means a worker’s retirement plan should reflect the worker’s values.

Workers across the country are interested in investing in a way that reflects their values—whether those are combating climate change or promoting health and labor standards—without sacrificing returns.

An investment policy that considers ESG factors and is transparent about those factors lets workers be informed about potential risks and opportunities when evaluating an investment portfolio. Retirement investing shouldn’t be an opaque process for workers—after all, it’s workers’ own money we’re talking about! They should know where it’s going and feel good about where it’s going—not just in terms of their values, but in terms of knowing their investments will be secure long-term.

Recently, there has been quite an uptick in assets in defined-contribution plans being directed toward ESG investments. According to Morningstar, in the United States, “mutual funds focused on sustainable investing attracted more than $20 billion in assets in 2019, more than 4 times the flows in 2018.”[1] That is an astonishing rate of growth!

And those investments are doing well. Sustainable investing and profitable investing aren’t mutually exclusive. Quite the contrary. Morningstar reports that, “a growing body of evidence suggests that using sustainable investments generally has not reduced risk-adjusted returns to date.” Morningstar even found that funds based on environmental, social and governance goals outperformed conventional offerings during 2019 and the first quarter of this year.[2]

The Sustainable Investment Policy Act is meant to make sure the money workers set aside for their retirement takes relevant factors into account so it is safe for the long haul and, by the same token, ensures a healthy and safe future for our children and grandchildren.

[1] Aron Szapiro, Sharpening the Tools of the ESG Investor, Morningstar (July 6, 2020), [2] Id.


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