October 01, 2016

Public pension funds increasingly look to Economically Targeted Investments (ETI) and Environmental, Social, and Governance (ESG) factors in making investment decisions, both to obtain collateral social benefits and as part of their fundamental risk-return economic analyses. But what fiduciary standards apply to these types of investments? Concerned that its guidance from 2008 had “unduly discouraged” pension funds from making ETIs and considering ESG factors, the U.S. Department of Labor (DOL) last year issued a new Interpretive Bulletin that “reinstated” language from 1994 and took a more favorable view of such investments. The DOL’s Interpretive Bulletin 2015-01 does more than simply revert to an earlier time, however – it demonstrates a more evolved and nuanced understanding, particularly of the multiple ways in which ESG factors can be considered in an investment decision. This current guidance acknowledges that factors associated with ETIs and ESG can, in some instances, be properly incorporated into an economic analysis without requiring additional procedural or substantive steps to ensure compliance with fiduciary obligations.

Suzanne M. Dugan, a member of NAPPA’s Fiduciary & Plan Governance Committee, is head of the Ethics and Fiduciary Counseling practice at Cohen Milstein Sellers & Toll PLLC.

Raymond M. Sarola is an associate at Cohen Milstein Sellers & Toll PLLC.

The full NAPPA Report article can be read here.