ABA Letter to DOL on ESG Investments Proposal

Office of Regulations and Interpretations
Employee Benefits Security Administration
Room N-5655
U.S. Department of Labor
200 Constitution Avenue, NW
Washington, DC 20210

Ladies and Gentlemen:

The American Bankers Association (ABA) appreciates the opportunity to provide comments to the Department of Labor (Department) on proposed amendments (Proposal)  to the Department’s Investment Duties regulation (Regulation) that are intended to clarify the fiduciary duties of prudence and loyalty under the Employee Retirement Income Security Act of 1974 (ERISA). The Proposal is intended to address uncertainties of the Regulation’s application to investment decision-making and proxy voting activity that involve consideration of environmental, social, or governance (ESG) factors, including climate change-related factors and financial risks. Specifically, the Proposal would amend the regulatory standards of a fiduciary’s selection of an “investment and investment course of action” – including the selection of qualified default investment alternatives (QDIAs), exercising shareholder rights (such as proxy voting), and the use of written proxy voting policies and guidelines – to expressly authorize a fiduciary’s consideration of ESG factors as part of a fiduciary’s “appropriate consideration” of facts and circumstances that are relevant to such investments or investment courses of action.

As ERISA fiduciaries and services providers to plans, our members have a great interest in the proposed amendments to the Regulation. We support the direction of the Department to make these rules more principles-based and to remove unnecessary barriers for fiduciaries to consider as part of a prudent process for ESG considerations. In particular, we appreciate the removal of the “pecuniary” requirement in the current rule, as well as the limitation on QDIAs in considering any factors, including ESG factors that may be prudent but which would not necessarily meet the Regulation’s “pecuniary” standard.

To further the goal of allowing fiduciaries to consider prudently ESG factors in investment decision-making and proxy voting activity, we offer some comments and suggested amendments to help make this regulatory scheme consistent over administrations, to clarify compliance requirements, and to minimize potential operational risks. We believe that these recommended modifications would (i) achieve the Department’s goal to clarify the Regulation’s requirements, (ii) provide compliance certainty, (iii) minimize additional regulatory burdens and costs, and (iv) avoid unintended adverse consequences for fiduciaries, plans, and retirement investors, while still achieving the Department’s regulatory objectives.

For ease of reference, we have divided our comments and recommendations below as follows: Part I (recommendations for Proposal’s ESG investing provisions), Part II (recommendations for Proposal’s proxy voting provisions), and Part III (recommendation regarding Proposal’s applicability date).

Download the comment letter to read the full text.