To be sure, the previous administration went out of its way to prevent private retirement plans from taking ESG (environmental, social or governance) factors into consideration for investment decisions. But now that the Biden administration finalized the new rule this past week, plans will be able to select socially and environmentally responsible investments without fear of unfair regulatory interference. More importantly, it recognizes that a lack of positive ESG factors can increase an investment’s risk and threaten its future viability. This is a major step in the right direction.
Over the last 25 years, there has been a regulatory back-and-forth over the U.S. Department of Labor’s (DOL) guidance on the Employee Retirement Income Security Act of 1974 (ERISA). Under Democratic administrations, the DOL has looked favorably at ESG considerations like sustainability and equality and has not seen them as inconsistent with ERISA’s dual fiduciary and loyalty duties. And it stands to reason: ESG deficiencies can represent major risks involving an investment’s long-term growth, legal liability and public perception.
Predictably, the previous administration’s DOL released a regulation that imposed new standards on ESG usage by ERISA plans simply to shield investments that are demonstrably irresponsible when it comes to ESG factors. But a new Biden administration DOL rule released Oct 13, rightfully ends this “ping-pong” between administrations, to remove any doubt of what’s been clear all along: ESG factors are meaningful, material investment criteria.
Plan sponsors now have clear guidance to support integrating sustainable investing strategies into defined contribution plan design — namely, to rely on a well-documented, prudent process that emphasizes materiality, diversification, risk and return in evaluating the duty of care, while relying on “prudent experts” as needed.
Given sustainable investing is trending relatively recently in the U.S. Defined Contribution (DC) plan marketplace, DC plan-specific regulatory guidance and case law has been limited.
The Defined Contribution Institutional Investment Association (DCIIA) and the Intentional Endowments Network (IEN) have both recently released guides for integrating more ESG options in retirements plans. We define “sustainable investing” as an investment philosophy that seeks to generate financial value by incorporating environmental, social and governance values. This umbrella term includes multiple approaches, such as integrating ESG factors into a fund, as well as funds that incorporate macro ESG-themes. Portfolios are considered sustainable when decision-makers weigh the impact of ESG factors along with other traditional financial metrics in portfolio construction and investment management processes.
Sustainability challenges represent urgent, material risks and opportunities for investors. Just in the past few years, climate impacts have wreaked havoc, destroying lives and costing businesses, governments and investors hundreds of billions of dollars. Extreme inequality and racial injustice, laid bare by the pandemic, have driven social unrest and changed the landscape for corporate governance and stakeholder engagement. These intersectional issues of climate change and social equity are critical factors for fiduciaries to consider in the investment process. They increase both portfolio risk and the systemic risk.
As communities and governments around the world grapple with these issues, we are experiencing a transformational shift. People are demanding a “just transition” to a low-carbon economy that reduces greenhouse gas emissions while protecting workers and vulnerable communities and addresses inequality and injustice in the process.
Further, the scale of sustainable investment commitments, especially in the higher education space, is growing and impacting the market. Several endowments have moved on fossil fuel divestment and fossil fuel free investing (including recent announcements from Harvard, Boston University, MacArthur Foundation), Net Zero Portfolio commitments (Harvard, Stanford, Penn, Arizona State, Michigan) and racial equity (University of California, University of Chicago, Warren Wilson College). Now it is time for retirement plans to keep pace and include strong ESG options.
As Bill McKibben recently noted, “These divestments are so large that they’re starting to have deep effects on the ability of the fossil fuel industry to expand.”
It is time for regulation to catch up with reality. With the new ERISA rule in place, the legal framework for how retirement plans can finally analyze risk and value in ways that makes sense for all stakeholders as the market transforms to meet the social, environmental and even existential challenges we face today. And, as important, it allows employees to invest their values to help bring about a world that can support these institutions over the long term, and leaves no one behind.
Georges Dyer is co-founder and executive director of the Crane Institute of Sustainability, and leads its flagship initiative, the Intentional Endowments Network (IEN).
NEW YORK (AP) — Shares of Tesla soared Wednesday as investors bet that the electric vehicle maker and its CEO Elon Musk will benefit from Donald Trump’s return to the White House.
Tesla stands to make significant gains under a Trump administration with the threat of diminished subsidies for alternative energy and electric vehicles doing the most harm to smaller competitors. Trump’s plans for extensive tariffs on Chinese imports make it less likely that Chinese EVs will be sold in bulk in the U.S. anytime soon.
“Tesla has the scale and scope that is unmatched,” said Wedbush analyst Dan Ives, in a note to investors. “This dynamic could give Musk and Tesla a clear competitive advantage in a non-EV subsidy environment, coupled by likely higher China tariffs that would continue to push away cheaper Chinese EV players.”
Tesla shares jumped 14.8% Wednesday while shares of rival electric vehicle makers tumbled. Nio, based in Shanghai, fell 5.3%. Shares of electric truck maker Rivian dropped 8.3% and Lucid Group fell 5.3%.
Tesla dominates sales of electric vehicles in the U.S, with 48.9% in market share through the middle of 2024, according to the U.S. Energy Information Administration.
Subsidies for clean energy are part of the Inflation Reduction Act, signed into law by President Joe Biden in 2022. It included tax credits for manufacturing, along with tax credits for consumers of electric vehicles.
Musk was one of Trump’s biggest donors, spending at least $119 million mobilizing Trump’s supporters to back the Republican nominee. He also pledged to give away $1 million a day to voters signing a petition for his political action committee.
In some ways, it has been a rocky year for Tesla, with sales and profit declining through the first half of the year. Profit did rise 17.3% in the third quarter.
The U.S. opened an investigation into the company’s “Full Self-Driving” system after reports of crashes in low-visibility conditions, including one that killed a pedestrian. The investigation covers roughly 2.4 million Teslas from the 2016 through 2024 model years.
And investors sent company shares tumbling last month after Tesla unveiled its long-awaited robotaxi at a Hollywood studio Thursday night, seeing not much progress at Tesla on autonomous vehicles while other companies have been making notable progress.
TORONTO – Canada’s main stock index was up more than 100 points in late-morning trading, helped by strength in base metal and utility stocks, while U.S. stock markets were mixed.
The S&P/TSX composite index was up 103.40 points at 24,542.48.
In New York, the Dow Jones industrial average was up 192.31 points at 42,932.73. The S&P 500 index was up 7.14 points at 5,822.40, while the Nasdaq composite was down 9.03 points at 18,306.56.
The Canadian dollar traded for 72.61 cents US compared with 72.44 cents US on Tuesday.
The November crude oil contract was down 71 cents at US$69.87 per barrel and the November natural gas contract was down eight cents at US$2.42 per mmBTU.
The December gold contract was up US$7.20 at US$2,686.10 an ounce and the December copper contract was up a penny at US$4.35 a pound.
This report by The Canadian Press was first published Oct. 16, 2024.
TORONTO – Canada’s main stock index was up more than 200 points in late-morning trading, while U.S. stock markets were also headed higher.
The S&P/TSX composite index was up 205.86 points at 24,508.12.
In New York, the Dow Jones industrial average was up 336.62 points at 42,790.74. The S&P 500 index was up 34.19 points at 5,814.24, while the Nasdaq composite was up 60.27 points at 18.342.32.
The Canadian dollar traded for 72.61 cents US compared with 72.71 cents US on Thursday.
The November crude oil contract was down 15 cents at US$75.70 per barrel and the November natural gas contract was down two cents at US$2.65 per mmBTU.
The December gold contract was down US$29.60 at US$2,668.90 an ounce and the December copper contract was up four cents at US$4.47 a pound.
This report by The Canadian Press was first published Oct. 11, 2024.
