Two pieces of retirement-focused legislation intended to protect and increase sustainable investments were introduced in Congress this week by a trio of democratic representatives.
Reps. Andy Levin (D-MI), Brendan Boyle (D-PA) and Cindy Axne (D-IA) introduced the Sustainable Investment Policies Act and the Retirees Sustainable Investment Policies Act. Together these bills would give workers a bigger say in where they invest their retirement savings by requiring 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.
Sustainable investing and profitable investing are not mutually exclusive. According to Morningstar, on average, investments based on ESG goals outperformed conventional offerings during 2019 and the first quarter of 2020, the co-sponsors pointed out in a statement announcing the bills.
DOL rule complicates ESG matters
Yet on June 30, the Department of Labor proposed regulations seemingly designed to discourage and block sustainable retirement investing. The DOL received more than 8,000 comments on that proposal, with 95% of them opposing it. Those comments came not just from green investors and advocates, but also giants of the investment industry like Vanguard, Fidelity and BlackRock.
Rep. Levin was an outspoken critic of the proposed rule, and was a lead author of one of those comment letters that was signed by 39 members of Congress opposing the rule.
On October 30, the DOL finalized a version of this rule, which effectively prevents investment fiduciaries from investing in ESG funds.
The new legislation is quite the opposite, as together the bills would create an affirmative obligation to include ESG investments in retirement accounts.
“This is workers’ money. The investment process should be transparent to them and in line with workers’ values,” Rep. Levin said. “Fortunately, we are seeing that there is a convergence of sustainability values and diversity priorities in governance with durable performance over time. Companies perform better if they are aimed at where the economy is going, which is towards sustainability and inclusion across all aspects of how we build, how we make things, how we live and how we move about.”
Interestingly, Rep. Levin, a popular progressive who serves as Vice Chair of the House Education & Labor Committee and member of the Subcommittee on Health, Employment, Labor, and Pensions, is a leading contender to be named Secretary of Labor in the Biden Administration. Other names being floated for the post include Bernie Sanders, California Labor Secretary Julie Su, Sara Nelson, president of the Association of Flight Attendants-CWA and Boston Mayor Marty Walsh.
Co-sponsors make case
Rep. Boyle, a member of the House Ways and Means Committee, said the new ESG legislation allows Congress to give teeth to what industries, Wall Street and individual investors have made increasingly clear: taking environmental, social and corporate governance principles into consideration isn’t just good public relations, but is the viable, responsible, and profitable approach for America.
“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.
“When we save for retirement, we want to know that our investment is going to be focused where we want it and will be there when we need it,” Rep. Axne added. “It’s obvious that companies that invest in their future will do better over the long run, and that’s what sustainable investing is all about. We as investors should understand how our advisors are evaluating these risks, and having this information will help ensure people can control what their savings is supporting.”
Rep. Axne is a member of the House Financial Services Committee.
Bills could face uphill battle
The Sustainable Investment Policies Act would amend the Investment Advisers Act, and the Retirees Sustainable Investment Policies Act would amend the Employee Retirement Income Security Act (ERISA).
The bills are supported by the Center for American Progress, which released the white paper entitled, “Modernizing the Social Contract With Investment Fiduciaries” in November of 2020, the UNPRI (United Nations Principles for Responsible Investing), and Heartland Capital Strategies (HCS).
Introducing the bills so late in the year will make it next to impossible to get them passed, particularly as Congress continues to focus on another stimulus package and a Friday deadline to complete a must-pass government funding bill.
That being the case, Rep. Levin has said that he plans to reintroduce the bills next year in the new Congress, but they may face a tougher battle as the Democratic margin of control in the House will be smaller in the new session and Republicans may well maintain control of the Senate depending on the outcome of the Georgia runoffs.
It’s unclear what might happen with the legislation should Levin become the next Secretary of Labor.