DOL rules expected to clarify that ESG funds are OK in retirement plans

Mark Schoeff Jr. [00:00:03] Hello, I’m Mark Schoeff Jr., a senior reporter at InvestmentNews, joining us today for Three Questions is Lisa Woll, CEO of USSIF the Forum for Sustainable and Responsible Investment. USSIF members have more than five trillion in assets under management and include investment advisory, brokerage and mutual fund firms, as well as research and community development organizations and nonprofit associations. A leading proponent of ESG investing, USSIF is a prominent voice in the debate over how sustainable investing should be regulated. Welcome, Lisa. 

Lisa Woll [00:00:42] Thank you so much. Glad to be with you today. 

Mark Schoeff Jr. [00:00:44] The Department of Labor and the Securities and Exchange Commission are both working on ESG rules as we speak. What are you expecting from the revised DOL ESG rule as it relates to retirement plans? 

Lisa Woll [00:00:58] Great question. This is a big seat change in the last administration where definitely not a favorable environment for ESG and proxy voting and a risk of government pension plan. So we’re very much hoping that it will be clear that nothing precludes a fiduciary for including ESG oriented funds and erisa plans, and also that proxy voting is permissible in erisa plans. We also hope that it will make clear that it is OK to include a EFG fund, a fund that considers ESG criteria as a QDIA or a qualified default investment option. So so that’s a big deal because so many funds now participants are looking at what the QDIA is and investing in that. So you want to make sure that there’s an opportunity for ESG funds to also be included in that? 

Mark Schoeff Jr. [00:01:55] Right. And this doesn’t count as one of the three questions. It’s just a quick follow up on this one. Do you do you think the DOL will meet its September deadline for the revised ESG rule? 

Lisa Woll [00:02:07] Well, the rule, which we haven’t seen, of course, has been at the OMB Office of Management and Budget for review for several weeks now. So we are we are hopeful that it will it seems like it’s moving in that direction. And their process, I have found to be extremely participatory, really looking for input. So we’ve appreciated that as well. 

Mark Schoeff Jr. [00:02:28] The SEC also is working on ESG oversight. Lisa, what are you expecting from the from the SEC in terms of ESG related potential rules? 

Lisa Woll [00:02:41] Well, one thing I’d like to say, even before I get to the rules, is just what a seat change we’ve seen at the SEC in this administration. As part of our own policy ask we’d ask to have a senior advisor on ESG and sitting in the chairs office as well as in Corp Fin. You know, we saw the first ESG themed staff position under acting chair Allison Lee and then so many other staff who have been hired, who have deep and credible experience in this space. It’s gone beyond our original expectations. So we’re really pleased about that. And I think that’s an important frame for this conversation. We know that the SEC is looking at doing climate and human capital disclosure for corporate issuers. We have been asking for broad ESG disclosure across a wide range of ESG issues since 2009. We are hopeful that these initial attempts to create more comprehensive disclosure around climate and human capital management will lead to a broader take on ESG disclosure. At the same time, we know that there’s interest by the SEC and potentially creating new disclosure requirements for products that say they’re offering some kind of ESG fund, which we broadly support. We’ve been supportive of the CFA Institute’s voluntary standards. We ourselves are working on a standard that the SEC could use if they go in this direction so that we have some input into that. And we’re thinking about that right now. And of course, across the world, you’re seeing places like the European Union really solidifying what their own definitions are of a sustainable fund. So we expect we’ll see more of this kind of discussion and activity. 

Mark Schoeff Jr. [00:04:29] Why is the SEC focusing first on climate and human factor disclosures. And what do you think is going to come next? 

Lisa Woll [00:04:37] Right. So there’s a long history of climate change being a key issue for sustainable investors. There’s a long history of interacting with companies on it, and there’s a whole of government approach to climate change and acting on it across the entire administration. So it makes perfect sense that the SEC will move on this as a priority. With Human Capital Management they actually, under the last administration, put out a very brief set of principles around human capital management disclosure that I believe multiple commissioners now would like to take deeper and further and require more details across a range of human capital related issues. These to make perfect sense to me as first steps we expect political contributions may be a third one. And after that, we’d like to see a broader approach to ESG disclosure so that we can capture more of a range of ESG issues in one kind of approach rather than an issue by issue approach. 

Mark Schoeff Jr. [00:05:32] Well, thank you for joining us today. 

Lisa Woll [00:05:34] Thank you so much.