Partisan Measure Seeks to Handcuff Investors' Ability to Weigh ESG Risks to Portfolios
New York State Comptroller Thomas P. DiNapoli today wrote to President Biden in support of his planned veto of a resolution that would undo a U.S. Labor Department (DOL) rule that allows managers of retirement funds that are subject to the Employee Retirement Income Security Act to consider environmental, social and governance (ESG) risks as part of their investment decisions.
“Investors worldwide know that successfully managing portfolios means managing risk — including ESG risks. It’s prudent, common-sense investing,” DiNapoli said. “Companies that don’t safeguard employees’ health and safety, that don’t hire and promote on a level playing field, that don’t protect themselves from fires or floods or take steps to benefit the communities in which they operate, put their profits, reputations and investors at risk.
“The members of Congress attempting to undo the Department of Labor’s rule are trying to impose partisan politics on what should be dollars and cents, nonpolitical investment decisions. They cannot be allowed to play political football with the retirement security of millions of hardworking Americans. My thanks to President Biden for his assurance that he will do the right thing and veto this misguided attempt to politicize investment decisions.”
In December 2021, DiNapoli wrote in support of a rule submitted by the DOL relating to “Prudence and Loyalty in Selecting Plan Investments and Exercising Shareholder Rights, RIN 1210-AC03” (Rule). In his comment letter, DiNapoli stated that the DOL’s Rule would strengthen and provide greater guidance on the appropriateness of the evaluation of ESG factors—especially climate change. Additionally, DiNapoli stated there should be no doubt at this point that these factors can be material depending on the individual facts and circumstances, and that not only may fiduciaries properly consider them, but that in some instances, an evaluation of those factors may be required.
March 10, 2023
Dear President Biden:
I am writing to support your planned veto of H.J. Res. 30 — Providing for congressional disapproval under chapter 8 of title 5, United States Code, of the rule submitted by the Department of Labor relating to “Prudence and Loyalty in Selecting Plan Investments and Exercising Shareholder Rights.” As Comptroller of the State of New York, I serve as the Trustee of the New York Common Retirement Fund (Fund), which is the one of the largest public pension funds in the United States.
The Fund is not subject to the Employee Retirement Income Security Act (ERISA) or the Department of Labor’s rules, but ERISA guidance has the potential to change market standards by impacting the common and prevailing market practices of ERISA fiduciaries, who are a meaningful segment of institutional investors. It also has the potential to affect the corporate governance of the companies in which the Fund invests and, therefore, the Fund’s investments.
Investors worldwide have come to understand that prudent, long-term portfolio management requires contending with real-world issues. What investors, including the Fund, increasingly recognize is that companies that commit resources to managing environmental, social and governance (ESG) issues like climate risk, board oversight and human capital management, perform better. Accordingly, we cannot ignore the growing consensus among investors that ESG factors are financial factors that should be considered by all fiduciaries.
The New York State and Local Retirement System is ranked one of America’s best-managed and best-funded public pension plans. We have integrated ESG factors into our investment processes as part of our risk analysis for close to a decade. Like all fiduciaries, I am compelled to consider matters that may be material to risk or return when making investment decisions. ESG factors that meet this standard are no different.
The DOL Rule was welcomed by a broad array of investors because for many years, ERISA fiduciaries faced shifting standards from the Department about whether they can and should consider ESG factors in their role as investment stewards for retirement plan participants. I supported the DOL Rule because it strengthened and provided greater guidance on the appropriateness of the evaluation of ESG factors—especially climate change.
Far too many people are trying to impose their politics on what should be a dollars-and-cents, apolitical investment process. Voiding the 2022 DOL Rule would handcuff ERISA investors by discouraging them from considering material factors that a prudent investor, including pension funds, absolutely must consider.
Thank you for continuous efforts to deliver for America’s workers and for protecting the DOL Rule, which will better protect the retirement security for millions of workers.
Sincerely,
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