With our recent news bulletins dominated by the presidential campaign, Hurricane Patricia and the upcoming World Series playoff between the Kansas City Royals and the New York Mets, it is likely that most of us missed a recent Department of Labor announcement posted in the Federal Register and presented at a press conference near Wall Street on October 22^nd.

It was here that the U.S. Department of Labor’s Employee Benefits Administration issued Interpretive Bulletin 2015-01 (IB 2015-01) to provide guidance on the investment duties of pension plan fiduciaries, who are charged to “act prudently” in managing the pension plan assets under ERISA.

Whilst it may not have registered on the radar of the majority, this announcement is one well worth noting because it affects the millions of Americans who have pension plans regulated by the Employee Retirement Income Security Act (ERISA), a federal law passed in 1974. ERISA is a federal law that sets minimum standards for most voluntarily established pension and health plans in private industry to provide protection for individuals.

An important element of IB 2015-01, according to a Department of Labor news release, is that it explicitly “acknowledges that environmental, social, and governance factors may have a direct relationship to the economic and financial value of an investment.” In its fact sheet, the Department Labor concluded that a 2008 Interpretive Bulletin “unduly discouraged” fiduciaries from taking environmental, social, and governance (ESG) factors into account when making investment decisions. Thanks to IB 2015-01 they can now do so without any concerns about conflicting with ERISA guidance.

In a blog written on the day IB 2015-01 was released, US SIF – the Forum for Sustainable and Responsible Investment – referenced their 2014 Report on US Sustainable, Responsible and Impact Investing Trends. It shows that $6.57 trillion in assets are held today by US institutional investors and investment firms that review the environmental, social and governance practices, risks and opportunities of their portfolio companies and funds.

Lisa Woll, CEO of US SIF, said: “We agree with DOL’s statement that the 2008 guidance may have unduly discouraged fiduciaries from considering ESG factors.  Additionally, the 2008 bulletin was contrary to the growing consensus view that fiduciary duty may compel fiduciaries to consider ESG issues. Thoughtful consideration of ESG risks and opportunities is found across all asset classes, including listed equities, fixed income, private equity and real estate.  The DOL announcement tells ERISA plans, and all the actors influenced by ERISA plan practices, that fiduciaries need not treat ESG related investments differently than any other type of investment.”

It is only sensible to take a long-term view on pension plan investments, despite the dysfunctional short-term focus in today’s capital markets. Life expectancy continues to grow in the U.S. – today around 76 years for men and 81 years for women. According to the Center for Retirement Research at Boston College, the average retirement age for men is 64 and 62 for women. Considering that employee and employer contributions to pension plans start for many in their twenties, this money will have to earn returns for 40 years in order to fund a 15-year retirement. We’re talking a portfolio that will exist for a half a century. Thus, a long-term view that takes account of ESG factors in order to produce high and sustainable returns is essential.

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