‘Do Good’ Investing by Retirement Plans to Be Part of New Report (1)

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By Madison Alder

The Government Accountability Office will soon be issuing a report on how retirement plans should handle environmental, social, and governance investments.

The report will focus on the use of “do good” parameters by retirement plans like traditional pensions and 401(k) plans in the U.S. and comparable plans abroad, Chuck Young, managing director of public affairs for the GAO, told Bloomberg Law. Requested by three Democratic congressmen—Rep. Gerry Connolly (D-Va.), Rep. Jim Langevin (D-R.I.), and Sen. Brian Schatz (D-Hawaii)—the report likely will be published in May, Young said.

Its release coincides with recent investment guidance by the Labor Department that clarified guidance issued under the Obama administration. The new DOL guidance warns fiduciaries they should put the health of the retirement plans they manage before engagement in ESG investing and refrain from tying up large sums of plan funds in shareholder activism.

Political Shifts

A change in this type of investing guidance from administration to administration is typical. The Labor Department under President George W. Bush issued guidance to make ESG investing more stringent. Years later, President Barack Obama’s DOL shifted the guidance to be more lenient on ESG investing. A report from the congressional watchdog on the subject, however, will be brand new.

In his second week as head of the Employee Benefits Security Administration, Preston Rutledge had scheduled a meeting about the GAO report, according to documents obtained by Bloomberg Law. The Labor Department in response to a request for comments pointed to the field assistance bulletin and referred Bloomberg Law to the GAO for inquiries about the study.

The drive to make changes to ESG investing could be coming from the U.S. Chamber of Commerce. The group specifically lobbied on the Labor Department’s Obama-era interpretive bulletins for economically targeted investments and the exercise of shareholder rights, according to a pair of first-quarter lobbying filings.

A Chamber lobbyist and a lobbyist from Siff & Associates PLLC, who also lobbied on behalf of the Chamber, didn’t respond to Bloomberg Law’s inquiry about the group’s interest in the guidance.

One Chamber disclosure form specifically says the group lobbied the DOL in an effort to “ensure that any changes” the agency made to the Obama-era interpretive bulletin “do not needlessly curtail pension fund investments in infrastructure development that are otherwise prudent investments for a plan to make.”

The GAO report “may be the reason the bulletin came out when it did,” Joshua Gotbaum, former chair of the Maryland Small Business Retirement Security Board and former director of the U.S. Pension Benefit Guaranty Corporation, told Bloomberg Law.

The guidance could have been issued so the DOL has something to show for its efforts when the report publishes, but it also could be part of the usual change in guidance between political parties, he said.

‘Transparency in Our Pensions’

Interest in ESG investing and shareholder activism has increased in recent decades, Gotbaum said. Some people are nervous about the changing investing environment and others want to accelerate it, he said. Gotbaum is a guest scholar in the Economic Studies Program at the Brookings Institution in Washington.

The Labor Department’s shifting guidance also doesn’t appear to have an impact on ESG investing, Gotbaum said. Whether or not the DOL encourages economically targeted investing or proxy activity, the decision “has always been and will always be up to the fiduciaries themselves.”

James Cole II, a lawyer with Groom Law Group in Washington, echoed Gotbaum, telling Bloomberg Law the impact of the changes in guidance “remains to be seen.”

The guidance is arguably more restrictive than prior guidance under the Obama administration and technically reaffirms the “all thing things being equal test” for investments introduced by the Bush administration, Cole said.

Christopher B. Burnham, former Connecticut state treasurer and former undersecretary general at the United Nations, praised the new guidance.

“It’s a commitment by the DOL to promote honesty and transparency in our pensions,” Burnham, who is now president of the Institute for Pension Fund Integrity, told Bloomberg Law.

Investors shouldn’t “play politics with other people’s money,” he said.

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