Legislation would require ESG factors in investment decisions

Legislation that would require financial advisers to consider environmental social and governance factors when making investment decisions was reintroduced by House Democratic lawmakers on Thursday.

The Sustainable Investment Policies Act would amend the Investment Advisers Act to mandate that “large asset investment advisors” file a Sustainable Investment Policy with the Securities and Exchange Commission, according to a news release from the bill’s author, Rep. Andy Levin, D-Mich.

The document must describe the factors advisers use in making investment decisions and they must “align with an ESG framework” that includes corporate political spending, worker and collective bargaining rights, climate and other environmental risks, global human rights, diversity and inclusion practices and proxy voting practices.

A Levin spokesperson said the legislation would apply to all advisers covered by the Investment Advisers Act. The bill text has not yet been posted.

[More Global ESG Summit coverage: Learning to talk ESG with clients]

Levin also reintroduced on Thursday the Retirees Sustainable Investment Opportunities Act that amends federal retirement law, the Employee Retirement Income Security Act, to allow retirement plans to adopt a sustainable investment policy.

“The bill also affirms that ERISA plans may invest plan assets in sustainable investments so long as it is in the plan beneficiary’s best financial interest,” the Levin release states.

The measures were initially introduced in December. They had to be reintroduced this year in a new Congress because they were not approved last year. Joining Levin as co-authors are Reps. Brendan Boyle, D-Pa., Cindy Axne, D-Ia., and Jesus “Chuy” Garcia, D-Ill.  

“These bills make it easier for Americans to understand if their money is being invested in accordance with their values,” Levin said in a statement. “They bring transparency to the multi-trillion-dollar investment and pension management industries. They are vital for ensuring workers’ life savings are invested sustainably.”

Levin added: “Fortunately, sustainable investing and profitable investing are not mutually exclusive. Companies perform better if they are aimed at where the economy is going, which is towards sustainability with respect for human rights, labor rights, diversity, equity and inclusion.”

When the legislation was being formulated last year, the Trump administration Department of Labor had promulgated two regulations that would make it more difficult for retirement plans to use ESG factors in choosing funds. An executive order last week from President Joe Biden directed the DOL to “suspend, revise or rescind” those rules.

Even though Democrats hold narrow majorities in the House and Senate, the bills face a difficult legislative path. The Senate is evenly split, 50-50, by Democrats and Republicans, giving the GOP plenty of leverage to block the bills through a filibuster that requires legislation to attain 60 votes for approval.

ESG-related legislation “probably isn’t going to go anywhere in Congress because it’s difficult to muster the 60 votes in the Senate and get bipartisan support for it,” Jon Hale, global head of sustainability research at Morningstar Inc., said Thursday during the InvestmentNews Global ESG Summit.

Last month, ESG legislation passed the House Financial Services Committee with only Democratic support.

The authors of the bills introduced on Thursday span several committees. Levin is a member of the House Education and Labor Committee. Boyle is a member of the House Ways and Means Committee. Axne and Garcia serve on the House Financial Services Committee.