Superintendent Linda A. Lacewell today announced the New York State Department of Financial Services’ (DFS) opposition to the federal government’s proposed rule change to Environmental, Social, and Governance (ESG) investing on the grounds that this change risks undermining the retirement security of workers. The U.S. Department of Labor’s (DOL) new Proposed Rule discourages fiduciaries from engaging in ESG analysis in their decision-making to the detriment of workers’ retirement returns and the market more broadly.

As regulator of pension plans, DFS understands that the best regulatory and policy approach for workers and the market as a whole is to support and promote the developing ESG framework rather than discourage it, as the Proposed Rule would do. DFS submitted a letter to Labor Secretary Scalia in opposition to the Proposed Rule, reaffirming DFS’ commitment to combatting climate change and encouraging the ESG considerations in investments.

“DOL’s Proposed Rule discourages ESG investing in private employee pension plans,” said Superintendent Lacewell. “This limits investment opportunities and weakens the hard-earned retirement security of workers. At the same time, the Proposed Rule would also undermine critical ESG goals we as a country now more than ever must adopt to combat climate change. ESG may material to investments and they shall not be ignored.”

On June 23, 2020, DOL announced a new Proposed Rule that would update and clarify their investment duties regulation. According to DOL, the Proposed Rule seeks to make clear that Employee Retirement Income Security Act of 1974 (ERISA) plan fiduciaries may not invest in ESG vehicles when fiduciaries understand an ESG investment strategy of the vehicle may reduce return or increase risk for the purpose of non-financial objectives.  

Proposed Rule will discourage fiduciaries from investing in ESG vehicles or considering ESG factors at a time where the data increasingly shows the benefit of ESG investing. According to the Global Sustainable Investment Alliance, ESG investing totaled approximately $30 trillion in assets under management as of year-end 2018, and is growing. 

Instead of making it more difficult to use ESG factors to understand and manage risk, DFS calls on the federal government to take actions to develop better transparency and deeper understanding of how ESG risks, and climate-related financial risks in particular, impact the financial system, the economy, and workers and their pensions.   

Read a copy of the submitted letter on the DFS website.