US Department of Labor’s Proposed Rule Will Remove Barriers Making It Easier to Select Investments that Consider Climate Change and other environmental, social and governance (ESG) factors
WASHINGTON, D.C. – December 2, 2021 – With the recent proposed rule from the US Department of Labor making it easier for employees to invest in retirement funds that consider climate change and other social factors, the Intentional Endowments Network (IEN) is calling on America’s institutions of higher education to start offering ESG integrated retirement plan options and has updated its Retirement Guide to better assist Plan Sponsors in this endeavor.
Colleges and universities in the U.S. are a hotbed of climate initiatives and the fossil-fuel divestment movement, but very few schools offer sustainable retirement plans allowing their employees to avoid investing in funds that are not explicitly considering the risks of climate change or addressing other environmental, social and governance (ESG) investment issues, such as racial and gender equality and for-profit prisons, according to IEN. The stakes here are high, with more than $1 trillion in 403(b) assets in higher education retirement funds that are potentially investing in ways that run counter to the mission of their institutions.
“Endowments are recognizing the risks and opportunities associated with issues like climate change and racial equity and are increasingly taking action to adjust their investment strategies accordingly -- but most retirement investments are not offering options that do this,” said Georges Dyer, executive director of the Intentional Endowments Network. “IEN's Sustainable Retirements Initiative and this Guide assists colleges, universities, and other nonprofits in adding strong sustainable investment options that will lead to better long-term risk-adjusted returns for their faculty and staff. Now is the time for universities to begin adding these funds as we expect the floodgates to open once the DOL rule is finalized.”
The Guide now has a section designed to address fiduciary concerns that have arisen in the consideration of adding these types of funds in retirement plans, commissioned in partnership with Ceres. “All investors should be evaluating risk from climate change and other ESG factors in making their investment decisions. However, these concerns are particularly relevant to retirement savers,” said Eric Pitt, climate finance consultant for Ceres.
“Unless our society makes significant changes, the financial impacts of climate change will only increase over time, which creates the imperative to invest retirement savings in a way that limits exposure to avoidable climate risks. We are optimistic that the rules governing these plans are changing to better reflect these realities, and we applaud the many forward-thinking investors who are raising their voices in support. The fiduciary section of this guide was written to show how even now, plan sponsors can add climate-aligned and ESG funds to their plans in keeping with the letter and spirit of relevant regulations - and in so doing, can help to protect retirement assets for the long-term,” Pitt stated.
Representing over $1 trillion in 403(b) assets, retirement plan options for faculty and employees of colleges and universities are deeply invested in companies and investment products that run counter to the missions and goals of faculty, students, and institutions themselves. According to the Plan Sponsor Council of America, “fewer than 3 percent of plan sponsor respondents included (an ESG) option on their plan investment menu.” As a result, responsible investment funds (ESG) make up less than 1 percent of the funds in a typical retirement program for colleges and universities.
Further, in a 2019 study done by Mirova found that funds tracking 500 of the largest publicly traded companies in the US (S&P Index) would warm the planet by 4.3 degrees Centigrade by 2050. This is nearly 3 degrees higher than what the Paris Agreement called for in order to avoid the greatest impact of climate change on the planet.
Many colleges and universities have made commitments for their endowments to reach “net zero” emissions from the underlying assets, and/or pursue fossil fuel free strategies, including high-profile institutions such as Harvard University, Loyola University-Chicago, Dartmouth, Brown University, Cornell University, Boston University and the University of Massachusetts. Yet many of these same institutions fall short when it comes to offering retirement plans for their faculty and staff that align with their core mission and the transition to a low-carbon economy.
“College endowments have taken positive actions on investment issues relating to climate, diversity and inclusion, and racial equity, but higher education retirement plans have been slower to follow the same path,” stated Michael Rhim, a Principal at PRM Consulting and author of the Guide. “We anticipated the Biden administration and DOL would make it easier for employees to invest in these funds and the expanded Guide now also provides faculty, staff and students with information to determine what is in their retirement plan and how to advocate for ESG funds to be included in them.”
The IEN Guide, which was developed with the support and expertise of Federated Hermes, Gitterman Wealth Management, Natixis and Schroders can be downloaded here.
The Intentional Endowments Network is a peer learning network of colleges, universities, and other mission-driven institutional investors working together to achieve their risk and return objectives through investment actions that create a thriving, sustainable economy. IEN has more than 165 network members including endowments, asset managers, investment consultants, nonprofit partners, and individuals. www.intentionalendowments.org
CONTACT: Tony Calandro 314 420 2289