When it comes to Environmental, Social, and Governance (ESG) investing, regulatory changes are a big source of confusion for advisors and plan sponsors.
“Keep your eye on what we know and can be sure of.”
“It’s no surprise,” said Bonnie Treichel, Chief Solutions Officer at Endeavor Retirement, “the apparent ESG regulatory back-and-forth over the past several years is enough to make even an ERISA attorney’s head spin.”
Treichel, part of the Environmental “Assessment” ESG: What’s Next? panel at the 2022 NAPA 401(k) Summit, shared her views in a post-panel discussion.
The good news: When it comes to ESG, she’s confident that advisors and plan sponsors can move forward.
ESG regulatory outlook
Taking stock of current and pending ESG-related guidance in light of possible political developments, Treichel acknowledges that there are plenty of perceived uncertainties to sort through, though that shouldn’t be a deterrent to those looking to pursue ESG investing.
“Now we have the Financial Factors in Selecting Plan Investments Rule in place (although the DOL isn’t enforcing this rule) and we’re awaiting the final version of this rule’s replacement: Prudence and Loyalty in Selecting Plan Investments and Exercising Shareholder Rights.
At the same time, the DOL threw a curveball and issued a Request for Information (RFI) regarding President Biden’s Executive Order on Climate-Related Financial Risk on retirement plans,” she noted.
Treichel added that the SEC is also weighing in on ESG with its mandatory climate-change reporting rule and efforts to prevent greenwashing through better disclosure and enforcement.
“Advisors wonder if all these regulations will stand under a future Republican administration, if that’s the way the 2024 election goes.”
Focus on what we know
Treichel said that advisors and plan sponsors “shouldn’t worry about reading the political ‘tea leaves.’ Keep your eye on what we know and can be sure of. If you follow a prudent process and adhere to principles of loyalty—that is, putting participants’ financial interests first—you will be on solid footing.”
In the near term, she noted, companies are already taking steps to comply with SEC proposed rules, “and these efforts likely won’t get peeled back.”
In addition, EBSA has clarified that its current RFI solicits general input on agency actions that can be taken under ERISA, FERSA, and other relevant laws, and poses specific questions related to data collection and fiduciary issues, among other topics.
“In other words, it’s a different initiative than Prudence and Loyalty in Selecting Plan Investments and Exercising Shareholder Rights,” Treichel said.
Over the longer term, Treichel counsels, advisors, and plan sponsors will find that all the regulatory back-and-forth won’t matter—if they keep fulfilling their fiduciary duties of loyalty and care when it comes to ESG.
“Five years ago, plans offered ESG investments. Five years from now, they’ll be offering ESG investments,” she concluded. “Why? Because ESG investing is permissible so long as plan fiduciaries meet their fiduciary obligations first.”
Roberta Hess is CEO/Founder of Princeton Marketing. She can be reached at roberta@princetonmkt.com.
Roberta Hess is CEO/Founder of Princeton Marketing. She can be reached at roberta@princetonmkt.com.
