Will the US change the rules for pension funds around fiduciary duty to allow ESG integration?

In this month’s “Institutional Investor”, there is an article describing a movement that’s taking place in the U.S.A. that if you’re an institutional investor,  an asset manager, or a public company you may want to pay attention to.

The Democratic Chairman of the House Budget subcommittee on health, employment, labor and pensions, Robert Andrews, has taken on the issue that ERISA (the Employee Retirement Income Security Act in the USA that establishes minimum standards for pension plans) should support a change to U.S. Pension law that would provide a legal “safe harbor” for investors that weigh companies’ environmental, social and governance (ESG) factors when picking stocks.  This pressure would eliminate the concern that institutional investors might be held liable for violating their fiduciary duty by placing client’s money in “socially responsible” investments.

Andrews would like ERISA to permit — but not force — investors to take account of ESG factors.  This, in fact, could be the key to opening the US market to Socially Responsible / Responsible / Sustainable Investing mandates.  As it is, many endowment funds, pension plans and sovereign wealth funds are starting to think hard about the fact that ESG factors may actually be more in keeping with their fiduciary responsibilities than ignoring them.

The article notes that Andrew’s staff is investigating whether ERISA already implicitly includes a safe harbor.  Noting that if not, a rule change may be necessary.

This is definitely an area to pay attention to!

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