Pension Plan Investments: ERISA Fiduciaries May Consider Environmental, Social & Governance Factors Related to Economic Value

Private Equity Alert

Over the past two decades, the U.S. Department of Labor (DOL) has issued a number of advisory opinions and interpretive bulletins on economically targeted investments (ETIs).  These investments are generally defined as investments selected for the economic or other benefits they create in addition to the investment returns generated for the pension plan.  Under this guidance, pension trustees may treat these ancillary benefits as a tie-breaker when choosing between investment alternatives, provided that these alternatives are otherwise equal with respect to return, risk, liquidity and diversification.  On October 22, 2015, DOL issued Interpretive Bulletin (IB) 2015-01 addressing ETI investments.  In this IB, DOL reiterated the validity of the tie-breaker test but also provided new guidance.  When making investment decisions, plan fiduciaries should consider environmental, social and governance (ESG) factors that have a direct relationship to the economic value of the investment.  In these circumstances, these factors are not ancillary considerations or tie breakers; rather, they are proper components of the analysis of the economics of the investment.

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