End of Week Notes
I wonder why DOL had so much trouble coming up with an example of a material ESG issue…
Also: Diversity disclosures in this year’s proxy voting season
Perhaps the most objectionable part of the Trump Department of Labor’s proposed rule limiting ESG investing in retirement plans is its airy dismissal of the idea that ESG issues are financially material. Of course, it’s hard to discuss the topic intelligently without referring to the biggest ESG risk of all: climate change.
But the Trump Administration has scrubbed references to climate change from executive branch websites and suppressed reports on climate change. So is it any wonder that the DOL’s 60-page proposed rule does not contain a single mention of climate change as a material ESG risk or any citations to the work of groups like CERES or the Sustainable Accounting Standards Board (SASB) establishing the materiality of climate change and many other ESG issues?
Republicans have been trying to inch away from outright climate-change denial, but what that means for the Trump Administration is, rather than denying it out loud, they’re just not allowed to speak its name.
SASB Comment Letter: Rule would be harmful to plan beneficiaries
SASB has been working hard on the very topic of the financial materiality of ESG issues for nearly a decade, engaging hundreds of experts across industry groups, and developing a “materiality matrix” of material issues across industries. The proposed rulemaking document’s omission of SASB’s work and of the numerous studies based on its work could prove to be a big misstep for the DOL. By failing to provide an evidentiary basis for the rule, it could be challenged as arbitary and capricious.
In its comment letter, SASB lists numerous pieces of research based on its work, establishing the financial materiality of multiple ESG issues.
Here’s its conclusion:
Why, given the evidence of financial materiality found by SASB and numerous scholars, would ESG investing be singled out by DOL for a special rule, a special documentation requirement, and a “heightened” level of scrutiny? The DOL’s pejorative treatment of ESG investing seems designed to tamp down on such activity despite the materiality assessments reached by SASB and other experts in this area…
The end result of the DOL’s Proposal would be harmful, rather than beneficial, to plan beneficiaries. And because the Release fails to offer an evidentiary basis for its approach, the efficacy of the Proposal under an arbitrary and capricious standard of administrative rulemaking would be seriously in doubt.
Labor Department on wrong side of latest ESG debate
Editorial from Pensions & Investments, also check out the accompanying cartoon:
The Department of Labor’s proposal to seemingly curb the rise of ESG investing in ERISA-covered retirement plans is shortsighted and possibly harmful to plan sponsors and their participants…
Europe is already turning to a full-fledged ESG-regulated investing regime while other parts of the world also are looking to make this transition. The DOL’s shortsighted action could cause U.S. investors to miss out on the investments that are shaping the future of the global economy and remain with old-world strategies that don’t represent just how far we have come.
More than 40 House Members call DOL proposal to limit ESG investing in ERISA plans administrative “overreach”
By preventing entities governed by the Employee Retirement Income Security Act (ERISA) from investing with ESG principles, the DOL has not only engaged in an overreach into the actions of private businesses, but it has also significantly burdened those engaging in a practice that has proven beneficial…
The DOL neglects current conventional wisdom in investing and seeks to impose their political principles on private entities. ESG investing is sustainable, responsible, impactful, and has documented financial benefits. Professional trends in financial investing point towards an increased emphasis on ESG investing to account for future returns, growth, and sustainability…
As we seek to incentivize more responsible corporate structures and behavior, ESG has been a successful, free-market tool with which investors have been able to generate positive change. We reiterate our opposition to this rule and encourage the Administration to withdraw it.
Diversity disclosures in this year’s proxy season
My colleague Jackie Cook writes about diversity disclosures in this year’s proxy voting season, and expects more shareholder resolutions next year that ask for better corporate diversity disclosures and reports on actions taken based on promises to address systemic racism.
The national conversation ignited by the killing of George Floyd in May 2020 has evolved from a narrow focus on police brutality to a much broader evaluation of systemic racism and discrimination in society.
Shareholder resolutions are one of the ways that investors can challenge companies to deliver fairer, more sustainable outcomes and assume responsibility for social and environmental “externalities” or negative impacts.
Because of the lead time required to file shareholder resolutions, none were voted on during the 2020 proxy season that stemmed directly from the events and subsequent actions that have taken place this summer.
Yet 14 resolutions were voted on this year, calling for disclosure on workforce, senior management, and board diversity. These resolutions were generally well supported, averaging 45% support with six receiving majority support.
