New bill would require advisers to consider socially responsible investing in retirement plans

Legislation that would mandate investment advisers to incorporate socially responsible investing in their retirement saving strategies is on track to be introduced in the House after the Thanksgiving holiday.

Rep. Andy Levin, D-Mich., is drafting two bills — the Sustainable Investment Policies Act and the Retirees Sustainable Investment Policies Act — that would require investment fiduciaries to adopt investment policies explaining the role that environmental, social and governance factors play in making investment decisions for retirement plans.

Under the bills, which amend the Investment Advisers Act and the Employee Retirement Income Security Act, advisers would have to maintain a sustainable investment policy, inform workers about it and file it with regulators. The legislation would allow a private right of action to enforce non-compliance.

Socially responsible investing factors that must be taken into account could include worker wages and rights, environmental risks, political spending and human rights policies, among others.

The bills would implement an affirmative obligation to use ESG in retirement saving, taking the opposite approach of a final rule recently promulgated by the Department of Labor that critics say would chill the use of ESG in retirement plans by adding requirements for plan fiduciaries to justify ESG investments.  

Levin said his bills are not a direct response to the DOL rule. He said he’s trying to empower workers when it comes to their retirement savings.

“This is workers’ money,” said Levin, a member of the House Education and Labor Committee. “It shouldn’t be opaque to them. They have a right to know where their money’s being invested and to invest it in a way that reflects their values -- and they also have a right to have investments that perform well over time.”

Socially responsible investing and high returns are related, Levin said.

“We’re really learning that there’s a convergence of people’s values and of durable performance in investments,” he said. “If there are human rights violations in supply chains, that’s going to come back to bite a company. Companies are going to perform better if they’re aimed at where the economy is going, which is [toward] sustainability across all aspects of how we build, how we make things, how we live, how we move about.”

SUSTAINABLE POPULARITY

Sustainable investing is becoming increasingly popular in the marketplace. George Michael Gerstein, counsel at Stradley Ronon Stevens & Young, doubts that legislation is necessary to promote it with advisers.

“They will continue to take these ESG factors into account even without an express requirement under ERISA,” Gerstein said.

The bills could have a difficult legislative path to navigate. They’re being introduced near the end of a congressional session and would have to be re-introduced next year in a new Congress, if they don’t become law before the end of the year.

Next year, there will be a smaller Democratic majority in the House, and the Senate could remain in Republican control pending the outcome of runoff elections in Georgia.

So far, Levin only has lined up Democratic sponsors. But he is hopeful for momentum as President-elect Joe Biden takes office next year.

“We’re playing to win here,” he said. “And I really hope that we’ll find partners in the Senate and find partners across the aisle. It will be a new political world in a Biden presidency.”

Gerstein is pessimistic about the prospects for the legislation.

“Assuming the Republicans hold the Senate, it’s hard to imagine that legislation advancing,” Gerstein said.

HISTORY OF ACTIVISM

Levin, 60, a longtime labor organization and human rights activist, succeeded his father, Sander Levin, who represented his suburban Detroit district until 2019.

Levin's name has been floated for DOL secretary in the Biden administration. “I’ve been honored to be mentioned for it,” Levin said while playing down his chances. “I’m expecting I’ll be in the [next] Congress.”

Levin was the founder of an initiative that financed clean energy projects in his state -- Lean & Green Michigan. He’s confident the future of ESG investing -- and policy -- is bright.

“I think this is just going to get more and more popular,” Levin said. “People really are clamoring for it. People really want to have the option to invest for the future that they both feel good about and that they feel will do well for them.”