Today, the Department of Labor (DOL) proposed a new rule to support employers and fiduciaries in incorporating environmental, social, and governance (ESG) factors into investment options offered in retirement plans covered under the Employee Retirement Income Security Act (ERISA). The proposed rule would allow retirement plan administrators to consider ESG in their initial selection of investment options, and to make ESG-focused funds the default investment option for plan participants. It marks a departure from Trump administration rules, which many asset managers, retirement plan advisors, individual investors, and others criticized as deterring ESG incorporation.
The announcement reinforces the growing influence of ESG factors to broader market flows. Morningstar data shows asset flows into U.S. sustainable open-end and exchange traded funds reached a record $51.1 billion in 2020, up by more than double 2019’s total and nearly 10 times higher than 2018 flows. JUST Capital welcomes the DOL’s proposal as a step in the right direction to ensuring fiduciaries, and ultimately individuals, are able to fully and fairly seize the opportunity in this growth.
The DOL’s move marks the latest show of the Biden administration’s commitment to prioritizing ESG. The Securities and Exchange Commission (SEC) has focused on mandating ESG disclosure, and, with input from the public including JUST, has signaled that disclosure on human capital issues will be part of these efforts. With these measures taking shape, we’re continuing to bring C-suite leaders, investors, policymakers, and other stakeholders together to address the key challenges and opportunities that lie ahead for corporate America.
As ESG has become increasingly politicized, JUST Capital polling shows that the vast majority of Americans, regardless of political ideology, want companies to prioritize the same issues: paying a living wage, providing good jobs, cultivating a strong, diverse and inclusive workforce, and protecting workplace health and safety. The DOL’s new proposal is one way of helping drive capital to the companies leading on these and other important issues, and, if approved, we look forward to seeing its impact in practice.