Morgan Stanley, US SIF hail landmark US government’s decision on ESG investing

New guidance overturns 2008 ruling that held back sustainable investment

Investment bank Morgan Stanley and the US Forum for Sustainable and Responsible Investment (US SIF) have led those welcoming a landmark announcement by the US government to enhance the ability of investors to consider environmental, social and governance (ESG) factors as part of their investment process.

The US Labor Department yesterday (October 22) issued new guidance regarding economically targeted investments (ETIs) made by retirement plans covered by the Employee Retirement Income Security Act (ERISA), the 1974 law which sets minimum standards for private pension plans.

It overturned a 2008 ruling by the Department that put a perceived hurdle in the way of pension trustees from selecting investments on the basis of any factor other than the ‘economic interest’ of the plan.

This decision kept pension funds considering such factors as exploitative labor conditions, worker rights, internet freedom, community development and environmental impact before deciding where to invest.

A range of human rights advocates, investors, labor unions and others had sought to overturn the ruling – such as Vista Equity Partners, Domini Social Investments, Blue Wolf Capital Partners, Boston Provident, and Ariel Investments.

“We have heard from stakeholders that a 2008 department interpretation has unduly discouraged plan fiduciaries from considering economically targeted investments,” said U.S. Secretary of Labor Thomas Perez.“Changes in the financial markets since that time, particularly improved metrics and tools allowing for better analyses of investments, make this the right time to clarify our position.” He said the 2008 bulletin “muddied the waters”.

“The guidance also acknowledges that environmental, social, and governance factors may have a direct relationship to the economic and financial value of an investment,” a government statement said. “When they do, these factors are more than just tiebreakers, but rather are proper components of the fiduciary’s analysis of the economic and financial merits of competing investment choices.”

Morgan Stanley said it provides a major boost for sustainable investing which it called “a key mechanism for directing private capital at scale toward global social and environmental challenges”. US SIF Chief Executive Officer Lisa Woll said the decision “clearly signals that ERISA-governed plans, and by extension, those plans influenced by ERISA, may integrate critical environmental, social and governance issues into their investment decisions”.

Trillium Asset Management CEO Matthew Patsky added: “The gold standard for fiduciary duties in the United States – the standard that impacts Trillium and our peers – now recognizes consideration of ESG as a valid part of the investment discipline.”

The move could “ignite billions in smarter long term investing” said Robert F. Kennedy Human Rights. Link