Sustainable Investment Policies Act

Social(k) has been adding ESG to retirement plans since the last century! Government moves slow, but in the right direction finally!

The purpose of the Sustainable Investment Policy Act is to require retirement investors and fiduciaries to consider environmental, social, and governance—or “ESG”—factors when making investments that are covered by The Employee Retirement Income Security Act of 1974 (ERISA) and the Investment Advisers Act of 1940. Considering ESG factors is integral to fiduciary duty, because those factors help ensure the long-term sustainability of investments, without which Americans’ retirement security cannot be guaranteed.

The concept of the legislation was shaped in part by a white paper — Modernizing the Social Contract with Investment Fiduciaries — recently published by the Center for American Progress, a progressive Washington think tank.

Building a new social contract among companies, workers, society, and government will require a range of policy tools and aggressive actions, as ESG issues such as climate change have grown increasingly urgent over the past few decades. To that end, financial regulators—given their oversight responsibilities over capital markets and investment fiduciaries—have vital roles to play.

Regulators will need to step in to help develop and standardize data that will enable individual players in the economy to better understand and change their behavior. While this process will take time, there is no excuse for waiting to drive change among investment fiduciaries and companies. Firms and regulators already have significant information about the benefits of ESG-conscious investing that can form the basis for action now and in the future. Finding better ways to integrate ESG factors into the investment process is an essential step for investment fiduciaries to take.

While regulators in the rest of the world have updated their expectations of fiduciaries, U.S. regulators have affirmatively discouraged ESG integration and ESG investing. Policymakers should modernize the obligations of investment fiduciaries under federal laws to require them to adopt and implement sustainable investment policies. With these policies, investors would be compelled to focus on the risks associated with the world’s most pressing challenges and act appropriately. That is not just good for investors; it is good for everyone.

This bill was introduced on December 14, 2020, in a previous session of Congress, but it did not receive a vote.