The US Department of Labor has proposed a rule that pensions cannot invest in ESG funds that negatively impact returns.
Thirteen Senate Democrats have requested that the DoL withdraw the proposed rule on ERISA (Employee Retirement Income Security Act) plan fiduciaries’ responsibilities with respect to ESG investments because it “would undermine the ability to consider firms’ records on race and diversity when making investment decisions.”
The proposed rule, which was unveiled June 23, stipulates that ERISA plan fiduciaries cannot invest in ESG vehicles that sacrifice investment returns or take on additional risk. The rule would require plan fiduciaries to select investments “based on financial considerations relevant to the risk-adjusted economic value of a particular investment or investment course of action,” according to the DOL.
The rule, which potentially affects more than $10 trillion held in U.S. retirement plans, poses “the biggest single threat that the responsible investment industry faces,” according to Fiona Reynolds, CEO of Principles for Responsible Investing, a United Nations-affiliated investor initiative.