Invoice would enable ESG standards and funding in retirement plans

What you need to know

  • Sen. Smith’s bill would formally repeal the Trump-era rule on ESG investing.
  • An uncertain and regularly changing legal environment hinders the introduction of the ESG, she says.
  • The draft law aims to create legal certainty for plans that take ESG factors into account.

Senator Tina Smith, D-Minn., On Thursday introduced legislation to allow environmental, social and governance (ESG) criteria to be incorporated into ERISA-regulated pension plans.

The bill, the Financial Factors in Selecting Retirement Plan Investments Act, is co-sponsored by Senator Patty Murray, D-Wash., Chair of the Senate Committee on Health Education and Retirement Planning.

The bill would allow a plan trustee to consider ESG or similar factors in the context of executing an investment decision, strategy, objective, or other fiduciary act. and consider ESG collateral or similar factors as triggers when competing investments are expected to serve the plan’s economic interests equally well in terms of expected return and risk over the reasonable time horizon.

Lisa Woll, CEO of the Forum for Sustainable and Responsible Investing, said in a statement on Thursday that “Investors consider ESG criteria because they are essential to financial performance.”

Smith’s legislation, she continued, “ensures that the Department of Labor treats the use of ESG criteria to assess potential performance in the same way as traditional GAAP-reported financial information. Both have an impact on financial performance. “

The draft law “makes it clear that ESG criteria can be taken into account in qualified standard investment alternatives,” said Woll.

“Without this clarification, plan trustees may remain reluctant to offer sustainable investment products in off-the-shelf options due to concerns about regulatory and litigation risks,” added Woll. “Indeed, it is wise for QDIA investments to consider long-term threats such as climate change in order to protect the long-term interests of plan participants.”

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