US President Joe Biden has instructed officials to investigate the drafting of executive orders that could reverse a former President Trump law restricting the extent to which pension investors can invest in environmental, social and governance (ESG) funds.
The Washington Post reports that Biden has ordered a review of Trump rules including ‘a recent Labor Department rule preventing environmentally sustainable mutual funds from being default retirement investments’.
The Trump rule was designed to clarify implementation of fiduciary duty under The Employee Retirement Income Security Act 1974 (ERISA), which establishes minimum standards for US workplace pensions.
The Department of Labor originally proposed the rule because of concern that ‘some investment products may be marketed to ERISA fiduciaries on the basis of purported benefits and goals unrelated to financial performance’.
Early drafts of the rules included what US SIF described as an ‘onerous and unworkable provision to calculate the economic impact of every vote on the proxy ballot, including votes for or against directors, to approve independent auditors as well as say-on-pay and shareholder proposals. This would have been a costly and imprudent use of plan assets’.
US SIF research found 96 of asset managers and investment advisers were opposed to the original rules, as were 97 per cent of investor organizations, multi-employer plans and trade unions and 91 per cent of financial services providers.
Final rules published in October 2020 watered down these proposals, but codified a requirement for fiduciaries to make investment choices purely on the basis of financial factors. The rule says fiduciaries can use non-pecuniary factors as a tie-breaker in the rare event that alternatives are equally balanced.
US SIF CEO Lisa Woll, CEO says: “We applaud President Biden’s decision to re-join the Paris Agreement. It is a critical first step in reasserting US leadership on climate change.
“Sustainable investors have been addressing climate change for decades and it remains a priority issue. The US SIF Foundation’s 2020Report on US Sustainable and Impact Investing Trendsfound that climate change was the most important specific ESG issue considered by asset managers.
“US SIF’s policy agenda includes a broad range of climate change priorities, including establishing a White House Office of Sustainable Finance and Business to galvanize further the private sector to work on issues like climate change, racial injustice and wealth inequality.
“We look forward to working with the Biden Administration on climate change and many other issues.”