A quartet of Democratic Congressmen reintroduced legislation May 27 seeking to promote transparent, sustainable ESG investing—including within 401ks.
Congressman Andy Levin (D-MI), member of the House Education & Labor Committee and member of the Subcommittee on Health, Employment, Labor, and Pensions, along with Congressman Brendan Boyle (D-PA), member of the House Ways and Means Committee, Congresswoman Cindy Axne (D-IA), member of the House Financial Services Committee, and Congressman Jesús “Chuy” García (D-IL), member of the House Financial Services Committee, introduced two pieces of legislation to protect and increase sustainable investments.
The Sustainable Investment Policies Act and the Retirees Sustainable Investment Opportunities Act together would give workers a bigger say in where they invest their retirement savings by requiring large asset managers and plan investors and fiduciaries to take into account and explain to beneficiaries how they consider environmental, social and corporate governance (ESG) factors when making investment decisions.
Both were originally introduced last December, essentially seeking to do the opposite of the Department of Labor’s Trump-era ESG rule obstructing investments that consider ESG factors, which in March the DOL under the Biden administration decided not to enforce. Levin said back in December he would reintroduce the bills in 2021, aware that the timetable for 2020 consideration was unrealistic.
“These bills make it easier for Americans to understand if their money is being invested in accordance with their values. They bring transparency to the multi-trillion-dollar investment and pension management industries. They are vital for ensuring workers’ life savings are invested sustainably,” said Rep. Levin in a press release announcing the legislation.
“Fortunately, sustainable investing and profitable investing are not mutually exclusive. Companies perform better if they are aimed at where the economy is going, which is towards sustainability with respect for human rights, labor rights, diversity, equity and inclusion,” Levin added. “I’m excited to work with the Biden administration and Secretary of Labor Marty Walsh, a proponent of sustainable investing, to garner support for this crucial legislative effort.”
Rep. Boyle said the bills would make long overdue modifications to the rules surrounding sustainable investments that will provide clarity and transparency for investors and increase awareness about how their money is being invested.
“This legislation isn’t just good public relations, but is the viable, responsible, and profitable approach for America. ESG principles should be guiding financial decisions. When environmental advocates, corporate leaders and business analysts can all agree that social responsibility cannot coexist without financial responsibility, we need to not just listen to them, but to act to ensure a better future for our economy, our 401ks and our environment,” Rep. Boyle said.
The Sustainable Investment Policies Act would amend the Investment Advisers Act to promote transparency and disclosure by having large asset investment advisors file a Sustainable Investment Policy (SIP) with the U.S. Securities and Exchange Commission (SEC). The SIP must describe the factors advisors consider when making investment decisions. These factors must align with an ESG framework. The ESG framework that investment advisers must consider includes, but is not limited to, the following investment considerations:
- Corporate political spending and decision-making;
- Worker and collective bargaining rights;
- Climate and other environmental risks;
- Global human rights and diversity and inclusion practices; and
- The plan’s engagement with entities into which it invests, including proxy voting practices.
The Retirees Sustainable Investment Opportunities Act would empower ERISA-regulated plans to adopt a Sustainable Investment Policy (SIP) that explains how the plan’s investments will address considerations like job creation, worker pay and benefits, human rights, climate change, and more.
The bill also affirms that ERISA plans may invest plan assets in sustainable investments so long as it is in the plan beneficiary’s best financial interest. The investment must also not compromise anticipated risk-adjusted returns.
Unlike many of the retirement reform bills introduced so far this year, the Sustainable Investment Policies Actand the Retirees Sustainable Investment Opportunities Act lack bipartisan sponsorship, which could mean an uphill battle on Capitol Hill.
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