The Department of Labor has issued new guidance making it easier for plan sponsors to offer ESG, or environmental, social, and governance investing strategies to plan participants.

Also called ETI, or economically targeted investment, the Department of Labor generally defines the investments as strategies that are selected for the economic benefits they create in addition to the investment return to the employee benefit plan investor.

This is according to interpretive bulletin 2015-01, released yesterday by the agency.

While such strategies have new momentum, particularly as they relate to “new” energy and green investing strategies, the question of ESG investing, and how the Employee Retirement Income Security Act regulates it, is not a new area of interest for the DOL.

In fact, the latest bulletin replaces guidance issued in 2008 with guidance first issued way back in 1994.

Originally, the DOL’s guidance said ESG investing must comply with ERISA’s fiduciary duty of prudence.

Which is to say that selecting investments with social or “collateral” dividends at the expense of plan participants’ best interests would constitute a breach under ERISA.

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“Fiduciaries may not accept lower expected returns or take on greater risks in order to secure collateral benefits,” is how the DOL interprets the spirit of original guidance issued in 1994.

In the new bulletin, the DOL said it has recognized that fiduciaries are allowed to consider collateral goals as “tie breakers” when weighing the advantages of one investment against another, so long as the two options present equal risk and return profiles.

In other words, sponsors and fiduciaries can go ahead and invest with a social purpose, so long as those investments have a competitive price and a traceable investment record.

In 2008, a new bulletin introduced language saying “non-economic factors in selecting plan investments should be rare and, when considered, should be documented in a manner that demonstrates compliance with ERISA’s rigorous fiduciary standards,” according to the DOL.

According to the agency, that language unduly scared away sponsors and fiduciaries from considering ESG investments.

In the seven years since its publication, the 2008 bulletin has kept fiduciaries from ESG investments, even when they have been “economically equivalent” to other investments.

“Some fiduciaries believe the 2008 guidance sets a higher but unclear standard of compliance for fiduciaries when they are considering ESG factors or ETI investments,” the DOL said.

Now, with reintroduction of guidance originally issued in 1994, those fiduciaries need not worry about implementing ESG strategies, so long as they have comparable cost and performance benchmarks to other investments.

“Environmental, social, and governance issues may have a direct relationship to the economic value of the plan’s investment. In these instances, such 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,” the DOL said.

The new bulletin will likely give energy to a growing movement advocating for sustainable investing.

“Prudent investors want to make investment decisions using as much materially relevant information available to them as possible,” said Audrey Choi, CEO of Morgan Stanley Institute for Sustainable Investing, in a statement.

“Our work at Morgan Stanley has found that a large number of investors want to invest for both social impact and financial return, and today’s announcement will enable Americans saving for retirement to more easily to exactly that,” she added.

A copy of the DOL bulletin can be found here.

Instant Insights /

DOL to fiduciaries: Go green if you like, but don&rsquo;t break the bank

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DOL to fiduciaries: Go green if you like, but don’t break the bank