This comment letter responds to a request from the Employee Benefits Security Administration, U.S. Department of Labor, for comments on its June 30 proposed rule “Financial Factors in Selecting Plan Investments” (hereinafter the “Financial Factors” rule) focusing on “Environmental, Social, and Governance” (ESG) investing by private pension plans governed under the Employee Retirement Income Security Act of 1974.
My name is Benjamin Zycher. I am a resident scholar at the American Enterprise Institute in Washington, DC. I formerly was a senior economist at the RAND Corporation, an adjunct professor of economics at the University of California, Los Angeles (UCLA), and a senior staff economist at the President’s Council of Economic Advisers. I hold a doctorate in economics from UCLA and a master’s degree in public policy from the University of California, Berkeley. The views that I express in this letter are my own and do not purport to represent those of any institution with which I am affiliated.
Some recent related activities on my part are as follows. I submitted a comment letter to the Securities and Exchange Commission on the SEC Staff Roundtable on the Proxy Process (File No. 4-725). I organized and moderated a panel discussion on “Environmental, Social, and Governance (ESG) Investing: The Proxy Advisory Process and the Interests of Investors,” held June 18, 2019 at the American Enterprise Institute, at which SEC Commissioner Hester Peirce delivered the keynote address. Subsequent to that I submitted to the SEC a formal comment on the SEC Proposed Rule: Amendments to Exemptions from the Proxy Rules for Proxy Voting Advice (File No. S7-22-19)
The new Financial Factors rule proposed by the Department of Labor is timely and needed, and the central purpose of this comment letter is the presentation of analysis in support of the adoption of the proposed Financial Factors rule as a final rule. Adoption of the rule is particularly important given the growing trend among fund managers governed by ERISA to incorporate ESG considerations in investment decisions. Such considerations must be heavily political, in particular because the choices among alternative ESG goals inevitably are arbitrary, and because the inevitable conflicts among them, and with the traditional and appropriate goal of value maximization, allow for no straightforward constraint on the ability of fund managers to use ESG factors to advance their own priorities. Thus does ESG investing conflict sharply with the interests of current and future retirees. Accordingly, investment decisions influenced by ESG considerations must carry with them serious adverse implications for the investment returns earned by current and future pensioners, that is, for their pecuniary interests.