The U.S. Department of Labor has given its approval of institutional investors who take into consideration the investment target’s environmental, social, and governance (ESG) practices when making investment decisions. Historically, some institutional investors were discouraged from investing in companies and funds based on non-financial factors. This was because of previous DOL guidance under ERISA (the Employee Retirement Income Security Act), a federal law that sets standards for private pension and health plans. But the new ERISA guidance states:
“In some cases ESG factors may have a direct relationship to the economic and financial value of the plan’s investment. In such instances, the ESG issues are not merely collateral considerations or tie-breakers, but rather are proper components of the fiduciary’s primary analysis of the economic merits of competing investment choices.”
Both B Lab and the B Corp community were instrumental in making this happen. Meeting with Secretary of Labor Thomas E. Perez to discuss the need for the ERISA reform, members shared how the B Corp community is helping create companies that care for employees and the environment in addition to building business value.
The new changes in ERISA guidance will clear a path to institutional capital for businesses that are working to solve social and environmental problems. By clearly permitting ESG investment screening, the new guidance sends a powerful message that investors may, and in some instances should, consider how companies are combining success in business with creating measurable value for society.