PRI presents legal perspectives on addressing ESG factors under ERISA

February 25, 2016

The PRI has released Addressing ESG Factors Under ERISA, a paper comprising two legal opinions from noted ERISA experts Groom Law Group and Morgan Lewis on integrating environmental, social and governance (ESG) issues into investment decision-making under the Employee Retirement Income Security Act (ERISA) guidelines. Responsible investors have long believed that addressing ESG factors in the investment process is aligned with fiduciary responsibilities, and this perspective was confirmed by the U.S. Department of Labor’s (DOL) Interpretive Bulletin 2015-01 released last October.

The new guidance follows on from the PRI’s report published last year, Fiduciary Duty in the 21st Century, which recommends to investors, asset consultants, and policy makers the next steps to advance fiduciary duty across eight countries: US, UK, Canada, Germany, South Africa, Brazil, Japan and Australia.
 

"Addressing ESG Guidance Under ERISA aims to help investors better understand how to conceptually integrate ESG into their investment process as well as identifying the practical steps needed to implement ESGs strategies in a systematic way across their organisations. Morgan, Lewis & Bockius provides clarification on the Interpretive Bulletin, particularly around the issues of ESG criteria incorporation versus socially targeting investing and economically targeted investments (ETIs). This guidance helps dispel the misconception that the three are one in the same. Groom Law Group highlights the need for a prudent and well-documented process for all investment considerations, including those made using ESG factors, and presents a framework for such a process. Fiduciary duty has long been given as a reason for not considering ESG factors, but the financial risks around issues like climate change, for example, have shown investors that ESG issues are material to their investments.  We hope this document will assist investors with legal advice on how to integrate ESG factors in their day-to-day investment processes.”

Fiona Reynolds, managing director of the PRI

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