Supplemental Comment to EBSA/DOL on ESG

August 17, 2020

Assistant Secretary Preston Rutledge


Department of Labor
200 Constitution Ave, NW, Ste S-2524

Washington DC 20210

RE: RIN 1210-AB95  NPRM: Financial Factors in Selecting Plan Investment 

Dear Assistant Secretary Rutledge,

This is a supplement to our earlier comment to reflect recent developments and respond to a claim made in one comment. While we disagree with all of the comments made that do not object to this proposal in the strongest terms, there is just one we feel requires an explicit rebuttal.  The comment from the Western Energy Alliance shows that the industry trying to suppress a market-based shareholder response to investment risk is not even able to pretend that its position supports retirement income security or investing for the exclusive benefit of pension plan participants.  The comment is explicit about its priorities: what essentially amounts to a subsidy by diverting pension assets into securities that would not normally qualify.  First they claim that they support ESG, which one might think would lead them to conclude that they should attract ESG-oriented investors. On the contrary, though, they claim that they understand what ESG means better than pension fund fiduciaries, among the most sophisticated financial professionals in the world and subject to the strictest standards of care and loyalty our legal system imposes. Like this rulemaking itself, they fail to come up with a single example of a “wrong” or “non-pecuniary” or “political” investment decision by a pension fiduciary. The argument they make here about the legitimacy of their own ESG commitments, is one they should be making to the market, not to regulators. It is not DOL’s job to evaluate claims about concerns about climate change, but if it was, the assertions of self-interested industry executives should be viewed with the greatest possible skepticism, especially when they are in conflict with findings like those we cited in our original comment, including the GAO study, the EPA study, and the July 1, 2020 business advisory from July 1, 2020 the U.S. Department of State, along with the U.S. Department of the Treasury, the U.S. Department of Commerce, and the U.S. Department of Homeland Security. 

And here comes the real issue: ” We have observed how ESG advocacy has negatively affected the industry’s access to capital over the last few years.” What the industry is saying here is that they want pension funds to subsidize otherwise market-unworthy investments. If ERISA directed plan fiduciaries to act for the exclusive benefit of corporate insiders, that might be worth considering. But EBSA’s duty is to protect pension beneficiaries, and that is the opposite of what the Western Energy Alliance is asking for.

We also want to make sure that the public record for this rulemaking reflects the latest research on ESG investing, including: ESG Shareholder Engagement and Downside Risk by Andreas G.F. Hoepner, Ioannis Oikonomou, Zacharias Sautner, Laura T. Starks, and Xiao Y. Zhou, which found that investor engagement on ESG issues can significantly reduce investment risk. We incorporate that paper, which is available online, by reference. This adds to the comprehensive, quantitative data that conclusively rebuts the unsubstantiated, conclusory cost-benefit analysis that is claimed for this proposed rule. If EBSA chooses to go forward, the final rule must explain explicitly why this extensive scholarship on ESG is inapplicable with its own thoroughly substantiated data or it will be at high risk of being overturned in the inevitable court challenge.

We also incorporate by reference the detailed new guidance on ESG from the EU.  It is clear from that document that any effort to limit investor access to ESG in evaluating risk and return will put ERISA fiduciaries and beneficiaries at a serious disadvantage in global markets. 

Please make this letter a part of the public record of the rulemaking.  Again, we have no financial interest in ESG investing or its customers and we are happy to answer any questions about our comment.


Robert A.G. Monks, Chairman (and former Administrator of PWBA)

Nell Minow, Vice Chair

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

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