A majority of institutions support a proposed rule from the Department of Labor that would explicitly permit retirement plan fiduciaries to consider climate change and other environmental, social and governance factors when selecting investments and exercising shareholder rights, according to a new report examining comment letters.
The report, published Tuesday by the Ceres Accelerator for Sustainable Capital Markets, US SIF: The Forum for Sustainable and Responsible Investment and Environmental Defense Fund, found that 83% of comment letters submitted by institutions supported the Labor Department proposal.
The proposal was unveiled in October and its comment period closed in December. In total, nearly 900 comment letters were filed, including 144 from institutions — four corporations, 53 asset managers or other financial service firms, and 87 advocates, which include stakeholders like investor organizations, trade groups and labor organizations, according to the report.
Major asset managers, including State Street Global Advisors, Vanguard Group and BlackRock submitted comment letters in support of the proposal.
"The strong support for the proposed rule by our members and other financial institutions and corporations demonstrates the broad understanding that environmental, social and governance data are important considerations when making investment decisions in retirement plans," said Lisa Woll, CEO of US SIF, in a news release.
The Labor Department proposal is in stark contrast to two rules finalized under the Trump administration — one of which one stipulates that ERISA plan fiduciaries cannot invest in "non-pecuniary" vehicles that sacrifice investment returns or take on additional risk. That rule also excludes a fund from being a qualified default investment alternative if its investment objectives, goals or principal investment strategy include or consider the use of one or more non-pecuniary factors. The other rule outlines the process a fiduciary must undertake when making decisions on casting a proxy vote. Both rules drew sharp criticism from the plan sponsor and sustainable investing community.
In March 2021, the Labor Department said it would not enforce either of the Trump administration's rules.
The proposal unveiled in October would remove the special rules for QDIAs that apply under the Trump administration rule.
On proxy voting, the proposed rule would eliminate the statement in the current regulation that "the fiduciary duty to manage shareholder rights appurtenant to shares of stock does not require the voting of every proxy or the exercise of every shareholder right."
"The overwhelming support from corporations and financial services firms shows that the business community recognizes the economic impact of the climate crisis, including both the risks and the opportunities that it presents," said Steven M. Rothstein, managing director of the Ceres Accelerator for Sustainable Capital Markets at Ceres. "The large number of comments shows that this issue has struck a chord with individuals, who want more sustainable options in their retirement plans."
More than 22,000 individuals filed comment letters or signed onto supportive petitions from groups that include the Sierra Club and Environmental Defense Fund.