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[Event Recap] [BASIC Event] US SIF Brown Bag Lunch Briefing of the DOL Changes in ERISA Guidance and Unlocking ESG Integration

Marion Rockwood

[Event Recap] [BASIC Event] US SIF Brown Bag Lunch Briefing of the DOL Changes in ERISA Guidance and Unlocking ESG Integration
Editor's note: Thank you to Marion Rockwood for blogging about the event. 

On Monday, December 14, 2015, the Boston Area Sustainable Investment Consortium and US SIF: The Forum for Sustainable and Responsible Investment held a lunchtime seminar at Putnam Investments near Post Office Square in Boston, MA. The speaker was Lisa Woll, CEO of US SIF.

Woll’s talk focused on US SIF’s report from September 2015 titled Unlocking ESG Integration, as well as new regulations from the Department of Labor on ESG consideration in pension plans.  

Unlocking ESG Integration

While US SIF often reports on the extent of ESG integration in the US investment community, its mission is to advance sustainable and responsible investment in all forms and it seemed time to provide a critique of the field. Woll gave an overview of how thoroughly asset managers are implementing ESG strategies.

US SIF made two important decisions in setting the scope of the dataset for the report. The first was clearly defining ESG integration to mean the systemic and explicit inclusion by investment managers of ESG factors into traditional financial analysis. The second was to limit the research to 16 of the largest money managers who had submitted an RI Transparency Report to the UN Principles for Responsible Investment (PRI) for the past two years and are practicing ESG Integration for more than 50% of their assets under management.

The report found that half of the money managers analyzed provided information on which ESG criteria they consider for all relevant asset classes. The remainder either did not publicly disclose the ESG criteria they consider or only disclosed for certain asset classes. However, disclosure on criteria alone does not go far enough. If ESG information is shared with investment teams but is not used as part of the decision-making process, the report suggests that those assets should not be considered integrated with an ESG strategy.

Woll conveyed three recommendations from the report’s authors. Specifically, money managers should:

(1)   apply specific ESG criteria and disclose those criteria;

(2)  clearly articulate whether their ESG practice is systemic and consistent or applied ad hoc and upon request; and

(3)  take advantage of training opportunities and move toward using a common set of definitions of various SRI investment strategies.

Briefing on the Department of Labor Changes in ERISA Guidance

The second part of the day’s discussion centered on the recent Department of Labor decision to rescind its 2008 ERISA guidance that discouraged retirement plan fiduciaries from considering ESG factors in investment decisions (read more here). ERISA (Employee Retirement Income Security Act) is a federal law that sets minimum standards for most voluntarily established private pension plans to provide protection for individuals participating in these plans. In reverting to the 1994 guidance, a preamble was added to emphasize that if an investment is economically feasible, it does not need extra scrutiny just for having a focus on ESG investments.

After Woll’s remarks, the crowd had a lively discussion and brainstormed how to spread the word so that changes in policy actually lead to changes in practice and deeper ESG integration. The guidance does not go so far as to say ESG factors must be considered and there still seems to be barriers to particular ESG strategies, such as shareholder engagement. On the flip side, interest from Millennials in ESG investing may be the push needed to get an SRI fund included among the mutual funds offered in corporate retirement plans. Ultimately, government support for ESG integration in our country’s retirement funds is an important step in driving home the message that “ESG no longer has cooties!”

You can read more about the US SIF report here, and review the Department of Labor’s press release on the ERISA changes here.

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