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).
TORONTO – Canada’s main stock index was down more than 200 points in late-morning trading, weighed down by losses in the technology, base metal and energy sectors, while U.S. stock markets also fell.
The S&P/TSX composite index was down 239.24 points at 22,749.04.
In New York, the Dow Jones industrial average was down 312.36 points at 40,443.39. The S&P 500 index was down 80.94 points at 5,422.47, while the Nasdaq composite was down 380.17 points at 16,747.49.
The Canadian dollar traded for 73.80 cents US compared with 74.00 cents US on Thursday.
The October crude oil contract was down US$1.07 at US$68.08 per barrel and the October natural gas contract was up less than a penny at US$2.26 per mmBTU.
The December gold contract was down US$2.10 at US$2,541.00 an ounce and the December copper contract was down four cents at US$4.10 a pound.
This report by The Canadian Press was first published Sept. 6, 2024.
TORONTO – Canada’s main stock index was up more than 150 points in late-morning trading, helped by strength in technology, financial and energy stocks, while U.S. stock markets also pushed higher.
The S&P/TSX composite index was up 171.41 points at 23,298.39.
In New York, the Dow Jones industrial average was up 278.37 points at 41,369.79. The S&P 500 index was up 38.17 points at 5,630.35, while the Nasdaq composite was up 177.15 points at 17,733.18.
The Canadian dollar traded for 74.19 cents US compared with 74.23 cents US on Wednesday.
The October crude oil contract was up US$1.75 at US$76.27 per barrel and the October natural gas contract was up less than a penny at US$2.10 per mmBTU.
The December gold contract was up US$18.70 at US$2,556.50 an ounce and the December copper contract was down less than a penny at US$4.22 a pound.
This report by The Canadian Press was first published Aug. 29, 2024.
The crypto market has recently experienced a significant downturn, mirroring broader risk asset sell-offs. Over the past week, Bitcoin’s price dropped by 24%, reaching $53,000, while Ethereum plummeted nearly a third to $2,340. Major altcoins also suffered, with Cardano down 27.7%, Solana 36.2%, Dogecoin 34.6%, XRP 23.1%, Shiba Inu 30.1%, and BNB 25.7%.
The severe downturn in the crypto market appears to be part of a broader flight to safety, triggered by disappointing economic data. A worse-than-expected unemployment report on Friday marked the beginning of a technical recession, as defined by the Sahm Rule. This rule identifies a recession when the three-month average unemployment rate rises by at least half a percentage point from its lowest point in the past year.
Friday’s figures met this threshold, signaling an abrupt economic downshift. Consequently, investors sought safer assets, leading to declines in major stock indices: the S&P 500 dropped 2%, the Nasdaq 2.5%, and the Dow 1.5%. This trend continued into Monday with further sell-offs overseas.
The crypto market’s rapid decline raises questions about its role as either a speculative asset or a hedge against inflation and recession. Despite hopes that crypto could act as a risk hedge, the recent crash suggests it remains a speculative investment.
Since the downturn, the crypto market has seen its largest three-day sell-off in nearly a year, losing over $500 billion in market value. According to CoinGlass data, this bloodbath wiped out more than $1 billion in leveraged positions within the last 24 hours, including $365 million in Bitcoin and $348 million in Ether.
Khushboo Khullar of Lightning Ventures, speaking to Bloomberg, argued that the crypto sell-off is part of a broader liquidity panic as traders rush to cover margin calls. Khullar views this as a temporary sell-off, presenting a potential buying opportunity.
Josh Gilbert, an eToro market analyst, supports Khullar’s perspective, suggesting that the expected Federal Reserve rate cuts could benefit crypto assets. “Crypto assets have sold off, but many investors will see an opportunity. We see Federal Reserve rate cuts, which are now likely to come sharper than expected, as hugely positive for crypto assets,” Gilbert told Coindesk.
Despite the recent volatility, crypto continues to make strides toward mainstream acceptance. Notably, Morgan Stanley will allow its advisors to offer Bitcoin ETFs starting Wednesday. This follows more than half a year after the introduction of the first Bitcoin ETF. The investment bank will enable over 15,000 of its financial advisors to sell BlackRock’s IBIT and Fidelity’s FBTC. This move is seen as a significant step toward the “mainstreamization” of crypto, given the lengthy regulatory and company processes in major investment banks.
The recent crypto market downturn highlights its volatility and the broader economic concerns affecting all risk assets. While some analysts see the current situation as a temporary sell-off and a buying opportunity, others caution against the speculative nature of crypto. As the market evolves, its role as a mainstream alternative asset continues to grow, marked by increasing institutional acceptance and new investment opportunities.
