October 13, 2018

Are ESG-Related Investments Right for Your ERISA Plan?

Russell L. Hirschhorn and Thomas A. Utzinger

A joint publication by the ABA’s Section of Labor and Employment Law and Section of Environment, Energy, and Resources.

Building on a trend in the United States in favor of “socially responsible investing,” some investors appear to be increasing their investments in mutual funds and exchange-traded funds that integrate “environmental, social, and governance” (ESG) factors. Private sector employee benefit plans governed by the Employee Retirement Income Security Act of 1974 (ERISA), however, do not appear to have warmed up to the idea. The slow growth could be attributable to the fact that ERISA imposes fiduciary duties on those responsible for managing a plan’s investments, including the duty to invest prudently. Plan fiduciaries may find it difficult to engage in a prudent selection process of ESG-themed investments given the absence of standardized reporting of ESG factors. Furthermore, guidance from the US Department of Labor (DOL) has made it clear that the desire to select ESG-themed investments cannot take preference over the fiduciary responsibility to invest prudently.

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