October 29, 2015

Socially Responsible Becomes Institutionally Acceptable: DOL opens door to ESG investing for plan sponsors

The Department of Labor just made it easier for retirement plan sponsors to include ESG factors when considering investments. ESG (environmental, social, governance) is shorthand for: is a company doing good while doing well? ETI (economically targeted investments) is another acronym referring to companies that create a benefit for the community as well as the stockholders. Since 2008, when the DOL issued Interpretive Bulletin 94-01 stating that ETI investing should be “rare,” many sponsors have been reluctant to look at ESG when evaluating investments; as fiduciaries, they needed to focus primarily on financial factors. But the Department of Labor’s new ERISA guidance on ETIs opens the door for sponsors to consider ESG factors in their retirement plan investment options.

“Investing in the best interests of a retirement plan and in the growth of a community can go hand in hand,” said U.S. Secretary of Labor Thomas Perez. Past guidance has created a misperception that ETIs are incompatible with a plan’s fiduciary obligations, but new guidance says that while fiduciaries cannot accept lower expected returns or take on greater risk for ESG benefits, they can take ESG into account as a “tiebreaker” among otherwise equal investments. The guidance also affirms that “…environmental, social, and governance factors may have a direct relationship to the economic and financial value of an investment. When they do, these factors are more than just tiebreakers, but rather are proper components of the fiduciary’s analysis of the economic and financial merits of competing investment choices.”

To read the Department of Labor’s full news release, visit: