Congressional Democrats Try to Make DOL ESG Rule the Law

Members of the Sustainable Investment Caucus have proposed legislation that would codify permitting ESG considerations in retirement plan investment.

New legislation, the Freedom to Invest in a Sustainable Future Act, was introduced Thursday by Representative Suzan DelBene, D-Washington, would codify the key elements of the controversial Department of Labor rule permitting environmental, social and governance considerations in retirement plan investing, which went into effect on January 30. The legislation is co-sponsored the co-founders of the Sustainable Investment Caucus, Representatives Sean Casten, D-Illinois, and Juan Vargas, D-California.

The bill would amend the Employee Retirement Income Security Act of 1974 to permit the consideration of ESG factors in retirement plan investing. It would also amend ERISA to include the updated “tiebreaker” rule: If a sponsor is deciding between multiple investment options, they could use “collateral” ESG factors if competing options would otherwise serve equally “the plan’s economic interests.”

This tiebreaker phraseology of “serve equally” is understood as a lower legal barrier than the phrasing of Trump-era the DOL rule from 2020, under the administration of President Donald Trump, which said that in order to consider collateral factors as a tiebreaker, competing investments must be otherwise indistinguishable.

Again in keeping with the new rule, and in contrast to the Trump-era rule, the bill explicitly does not require additional documentation. The bill reads: “A fiduciary shall not be required to maintain any greater documentation, substantiation, or other justification of the fiduciary’s actions relating to such fiduciary act than is otherwise required.”

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This point on documenting requirements was a key element of a lawsuit brought in Wisconsin on Tuesday which challenges the legality of the DOL’s ESG rule. That lawsuit alleges that by not requiring documentation of collateral considerations, fiduciaries can avoid leaving a paper trail which could then be used against them later in litigation.

Since the two open complaints—including one brought in North Texas by 25 states—against the DOL rule challenge its consistency with ERISA, the proposed bill would obviate that objection by amending ERISA to effectively incorporate the DOL rule.

The representatives who back the bill have put forward two reasons to support it: ESG is a sound financial methodology, and ESG principles can make investing more environmentally and socially responsible.

DelBene emphasized both components in a statement, saying that, “Americans deserve a secure retirement and ESG investments can be a key component in accomplishing that goal. This bill would help provide workers and retirees a pathway to reach that secure retirement and invest in a sustainable world for future generations.”

In the same statement, Casten emphasized the intersection of financial returns and ESG and said, “Climate risk is financial risk. Retirement plan fiduciaries should be free to consider climate change and other ESG factors without regulatory barriers or the threat of litigation. I’m proud to support this legislation that gives workers the option to invest in the best plans for their future.”

Democrat supporters of ESG in Congress often take what might be called the “happy coincidence” thesis, which says that considering ESG factors is good for investing and risk management, as required by ERISA, and that it also makes the investment sector more environmentally and socially conscious.

The bill would have to pass the Republican-controlled House of Representatives before being taken up by the Democrat-majority Senate. The bill has not been assigned to a Congressional committee yet, but it is likely to be referred to the House Financial Services Committee.

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U.S. Asset Managers Fear Federal Reserve Rate Hikes Will Cause Recession

Asset managers are concerned that higher rates will spark a liquidity crisis and 27% fear that continued rate hikes will cause significant equity market losses, CoreData Research finds.

A significant portion of U.S.-based asset managers think further Federal Reserve rate hikes would lead to a recession or some disruption in global financial markets, according to research last month by London-based CoreData Research.

The greatest anticipated risk of continued Federal Reserve rate hikes is a possible recession. Overall, 59% of survey respondents took a neutral look at a recession scenario, that there would be “a moderate recession in 2023, followed by a gradual recovery as central bank policies bring down inflation over time,” while 14% opted for a bull case, defined as “a mild recession in the first half of 2023, followed by a strong recovery, falling inflation and rising equity markets [in the second half of 2023],” and 27% said they agree with a bear case, defined as a scenario in which “stagflation and a deep recession [occur] in 2023, accompanied by a 10-20% fall in the equity markets, as central banks struggle to defeat inflation which remains high.”

In predicting the market’s future performance, there was great disparity between views of respondents with smaller asset pools ($250 million to less than $1 billion in assets) and those with larger asset pools ($10 billion or more in assets). The bigger money managers were 67% neutral case, 29% bear case and only 4% bull case, whereas the smaller money managers were 45% neutral case, 25% bear case and 30% bull case.

The survey also found that 43% of respondents think that the Federal Reserve will be unable to raise interest rates much above 5% due to the economic damage and financial stress that would follow.

Confirming the suspicions of these asset managers: At a fed funds rate of 5%, the U.S. government would pay more than a trillion dollars annually in interest on its debt. At a 5.5% terminal rate, where Wall Street most recently has said the terminal rate ends up peaking in this rate-hiking cycle, the U.S. government would see the interest servicing portion of its debt overtake Social Security as the biggest annual federal expense, according to the Peter G. Peterson Foundation. Current CBO projections have interest payments totaling $66 trillion over the next 30 years, with the model using an assumption of a 3.1% interest rate by 2032, with that figure increasing to 4.2% by 2052.

Increasing from a consistent federal funds rate of .08% in the fourth quarter of 2021 to an average federal funds rate of 3.75% during Q4 2022 ballooned the U.S government’s quarterly interest payment on its debt to $213.3 billion in Q4 2022, increasing 42% from its interest payment of $150 billion during the same period a year prior.

Not all outcomes regarding higher rates would be negative, as the rate moves have the same asset managers are eyeing positions in fixed income, and 32% said they were planning to allocate more toward cash if rates move to 5% or higher. Consistent with this, more than half (55%) plan to increase allocations to fixed income if the Federal Reserve raises rates to 5% or more.

Within fixed income, 36% of respondents said they are increasing allocations to investment-grade corporate bonds, the most of any fixed-income subtype, and 33% are set to increase allocations to government bonds. A further 23% of respondents said they plan to cut their exposures to emerging-market debt as a consequence of higher yields domestically.

“On the one hand, institutional investors harbor deep concerns about higher interest rates triggering an economic tsunami whose waves will reverberate through the U.S. financial system,” said Andrew Inwood, founder and principal of CoreData, in a statement about the survey. “But on the other hand, higher interest rates now offer better income opportunities after a prolonged and frustrating search for yield in the post-financial crisis low-rate environment. The income has finally returned to fixed income.”

The most unanimously consistent data point in the survey was that 97% of U.S. asset managers surveyed said that they will not be raising an allocation in crypto or digital in the current environment. Furthermore, 61% of respondents do not invest in crypto assets in any capacity.


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Indiana Amends ESG Bill to Exclude Private Markets

Changes mean legislation will cost state pension fund $5.5 million over 10 years instead of $6.7 billion.


Indiana’s House of Representatives’ Ways and Means Committee passed an amended anti-ESG bill on Tuesday that significantly reduces the additional costs the state’s retirement system would have to shoulder if the proposed legislation becomes law.

Indiana House Bill 1008, which was introduced last month by State Representative Ethan Manning, a Republican, requires the state’s public retirement system to divest from and stop doing business with companies or funds that use environmental, social and governance factors in their investment decisions.

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The bill is intended to provide that “a fiduciary, in making and supervising investments of a reserve fund of the public pension system, shall discharge the fiduciary’s duties solely in the financial interest of the participants and beneficiaries of the public pension system.”

An analysis of the original bill by the Indiana Legislative Services Agency said the bill could result in reduced aggregated investment returns over the next decade of approximately $6.7 billion, $6.4 billion of which would be lost by the state’s public defined benefit plans, with $300 million set to be lost from defined contribution funds.

According to the LSA’s analysis, the original bill would have limited the potential for active management of Indiana Public Retirement System funds, which would have essentially prohibited its use of active managers and investments in private markets. The LSA report anticipated this could lead to lower investment returns, which would then force a “significant increase” in employer contributions and state fund appropriations.

However, after the bill was amended to make private market funds exempt from its provisions, a new analysis from the LSA found that the bill would cost the state’s retirement system $5.5 million over 10 years, rather than $6.7 billion.

“INPRS estimates that the changes in the bill regarding proxy voting would increase administrative costs by $550,000 per year,” the new analysis stated, “$200,000 for custom proxy voting policy and infrastructure and $350,000 to hire additional investment staff to manage proxy voting.” It also noted that the retirement system has more than 200,000 proxy votes per year and that the public pension funds bear the administrative costs for them.

The analysis also said the bill would increase workload and expenditures for state agencies involved in establishing or maintaining a public retirement or pension plan, which includes the INPRS, the state police and the state treasurer.

“The bill would significantly increase reporting and tracking requirements for public pensions and proxy votes,” the analysis said.

Kevin Brinegar, president and CEO of the Indiana Chamber of Commerce, which had opposed the original version of the bill, said the organization “is still opposed to the bill as amended.”

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Australia Seeks Public Consultation on Pension Legislation

Former government accused of raiding superannuation system ‘with devastating impacts’ on savings.


The Australian government is seeking public input on its national pension system, which it said had been abused by the previous administration.

“Our superannuation system is the envy of the world,” Australian Treasurer Jim Chalmers said in a release. “But the last decade has seen the former government raid the superannuation system for their own purposes – with devastating impacts on Australians’ savings.”

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The administration of Prime Minister Anthony Albanese, elected in May 2022, says it took the next step toward passing pension legislation on Monday, when it released a consultation paper seeking input from Australians about the benefits, phrasing and implementation of an objective for the retirement system.

The administration noted that there is currently no agreed objective of superannuation—legislated or otherwise—to help guide policymakers, regulators, industry and the wider community.

“We need to change that,” Chalmers said.

Chalmers said that because the number of Australians entering retirement age is rising, there should be a greater focus on delivering strong retirement outcomes for its citizens.

“Superannuation is an increasingly important source of capital in our economy and the significant scale of Australia’s superannuation system contributes to the strength of our financial markets through capital deepening,” Chalmers said in the statement.

The size of Australia’s retirement system has grown significantly over the last 30 years from approximately A$148 billion in 1992 to more than A$3.3 trillion. It also now represents 139.6% of gross domestic product and is projected to grow to approximately 244% of GDP by 2061.

The consultation paper outlines the government’s proposed definition of the objective, which is “to preserve savings to deliver income for a dignified retirement, alongside government support, in an equitable and sustainable way.”

The paper provides context about the history of Australia’s superannuation system and the rationale for seeking a superannuation law, then offers options on potential framing. It also aims to show how a legislated objective could improve accountability and transparency in policy development.

According to the government, superannuation legislation will provide stability and confidence to policymakers, regulators and the industry, and proposed changes to superannuation policy will be aligned with the purpose of the superannuation system.

“There is a significant opportunity for Australia to leverage greater superannuation investment in areas where there is alignment between the best financial interests of members and national economic priorities, particularly given the long‑term investment horizon of superannuation funds,” Chalmers said.

Digital and mailed submissions in response to the consultation paper close on March 31.

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The ESG Lawsuits Continue

This one, brought in Wisconsin, alleges that the DOL’s rule on ESG unlawfully compromises Americans’ retirement.



The Wisconsin Institute for Law and Liberty, a conservative nonprofit law firm, brought a lawsuit Tuesday in the District Court for the Eastern District of Wisconsin challenging the Department of Labor’s recently enacted rule permitting the use of environmental, social and governance investment strategy in retirement plans. The complaint alleges that the rule “unlawfully politicizes the retirement system.”

The plaintiffs in the lawsuit are two defined contribution plan participants in Wisconsin: Richard Braun, an operations manager for SWAT Environmental, and Frederick Luehrs III, a maintenance supervisor at Petron Corp.

Like a similar lawsuit brought against the DOL in January, this one alleges that ESG is a “non-pecuniary” factor which prioritizes political considerations over risk and return, at the expense of retirees’ finances and to the benefit of political causes.

Different from the first lawsuit filed against DOL on this issue, verbiage indicating general disregard for ESG appears throughout the complaint. ESG is dismissed as an “investing fad” and said to be designed to promote “left-leaning political causes.” In a statement regarding this lawsuit from Kate Spitz, one of the WILL attorneys representing the plaintiffs, Spitz said, “By injecting highly partisan issues—like climate change and racial justice—into investment strategy, the Biden Administration is jeopardizing the retirement income of over 140 million Americans.”

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This complaint also emphasizes the removal of documenting requirements. A previous DOL rule from 2020 under the President Donald Trump’s administration said that non-pecuniary factors can only be considered as a tiebreaker between two investments if those investments were otherwise indistinguishable and if the plan documented why pecuniary factors were insufficient. The new rule allows non-pecuniary factors to be used if two investments would both equally serve the interests of the plan—seen by investment managers and ERISA attorneys as a lower bar—and has no documentary requirement.

The plaintiffs allege that dropping this documentary requirement allows plans to justify politically-informed investing choices using hindsight if they ever face litigation, rather than rely on their documented reasoning at the time the decision was made. This would have the effect of making it harder for participants to sue sponsors who use ESG considerations in investment selection, they argue, because there would be no paper trail documenting the plan’s decisionmaking, allowing for post hoc justifications.

The complaint ultimately requests that the court temporarily suspend the rule and then permanently enjoin the DOL from enforcing it and promulgating similar ones in the future.

WILL also signed on to a coalition letter earlier this month. The letter likewise dismisses ESG as a political agenda masquerading as an investment strategy. The letter states: “Rather than prioritize the financial well-being and stability of retirees, ESG seeks to advance ideological goals related to environmental policy and other divisive subjects.”

Among other signatories, the letter was signed by members of the fossil fuel industry—including four state coal alliances—and a number of nonprofits financed in part by the Koch brothers, including the Leadership Institute and Americans for Prosperity.

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Patricia Ribeiro Promoted to Co-CIO of Global Growth Equity at American Century Investments

Ribeiro will serve as co-CIO of global growth equity discipline and will share the role until May 31 with Keith Creveling, until he moves into a portfolio management role.

Patricia Ribeiro

Patricia Ribeiro was named co-CIO of the global growth equity discipline effective February 15 at American Century Investments.

Ribeiro will be responsible for investment management functions at the global asset manager with $215 billion in assets under supervision, as of January 31, 2023. She will report to American Century Investments CIO Victor Zhang.

In the new role, she will oversee investment culture, process oversight, resource allocation and talent development of teams including the global/non-U.S. large cap, global/non-U.S. small cap, emerging markets, and U.S. small cap growth teams. She will share CIO responsibilities for the larger global growth equity discipline with co-CIO Keith Lee, replacing current co-CIO Keith Creveling’s duties, after nearly nine years as co-CIO of the global growth equity discipline.

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“We’re pleased to promote Patricia into a greater leadership role at American Century. She has made significant contributions during her 17-year tenure, over which time she’s assumed increasing levels of responsibilities, including serving as chair of the Sustainable Investment Council. She has also consistently demonstrated impressive leadership skills as senior portfolio manager, a representative on the Diversity, Equity and Inclusion (DEI) Committee and a past member of our Expanded Management Committee,” said Zhang in the press release of the announcement.

Creveling will return to portfolio management, which remains his true passion. He retains all his portfolio management responsibilities for the global growth strategies, according to the release.

Ribeiro joined American Century Investments in 2006; previously serving as the lead of the emerging markets team, and as a senior portfolio manager. Prior to joining American Century, she was co-director of global research at Citigroup Asset Management, and head of Latin American equity research at JP Morgan Investment Management, managing portfolios at both firms.


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Lazard Promotes Larry Cohen to Global Head of Technology & Operations

Cohen joined the firm in August as a strategic adviser.

 Lazard Asset Management named Larry Cohen as managing director and global head of technology & operations, effective immediately, according to a press release on February 22.

“Larry brings a wealth of experience in the asset management industry as well as in technology and operational infrastructure,” said Evan Russo, Lazard Asset Management CEO, in the press release of the announcement. “He will work with our teams globally to improve and refine our global technology, systems and operational infrastructure, which will help support the next stage of growth and expansion within the asset management business.”

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Cohen joined the $216 billion indirect subsidiary of Lazard Ltd. in August as a strategic adviser.

Cohen most recently was president of FIRST, a global non-profit and robotics community, working to mentor and inspire young people to become science and technology leaders, according to his LinkedIn profile.

Prior to his tenure at FIRST, Cohen had been a partner at AllianceBernstein and the global head of operations and technology. Cohen has held technological roles at State Street, Morgan Stanley, First Boston, Fidelity Investments, Deutsche Bank, Goldman Sachs andUBS. Cohen holds an A.B. from Harvard University in Engineering and Applied Sciences.


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Ohio STRS Loses 9.52% in 2022, Board Rejects Neville Vote of Confidence

Despite loss, the $89 billion investment portfolio outperforms it benchmark by 138 basis points.


The Ohio State Teachers Retirement System reported a 9.52% investment loss for calendar year 2022; however, it still beat its benchmark’s performance by 138 basis points.

At its most recent board of trustees meeting, Ohio STRS investment consultant Callan provided its quarterly report on the pension fund’s performance, which said its performance ranked in the top 10% of public funds for the three-, five-, seven- and 10-year periods.

Callan also said that when measuring risk versus performance for the past five years, Ohio STRS’ investment return ranked in the top 5% of public funds it reviewed, and that the portfolio that had lower average risk than its peers.

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For December, Ohio STRS’ investment portfolio lost 2.07% to end the first half of fiscal 2023 with a gain of 0.51%. Domestic equity lost 5.7%, while real estate and international equity lost 1.9% and 1.4% respectively.

Although the pension fund closed out 2022 with a loss, it had a strong start to 2023 with a robust 4.03% return in January to end the month with investment assets of approximately $89 billion. International equity investments returned 7.3% during the month, while domestic equity and fixed income returned 6.8% and 2.8% respectively.

At the meeting, the Ohio STRS 11-member board also rejected a motion to declare confidence in Executive Director William Neville. Five voted in favor of the motion, while five voted against, with one abstention. The motion needed the support of six votes to pass.

“We have to have a change at the top,” said board member Julie Sellers, who introduced the motion, according to WCMH-TV. “The problems that have been here have been here for years, and I just feel like we need to have a direction forward.”

In 2021, the Ohio Retired Teachers Association commissioned a forensic audit that found “serious deficiencies” in Ohio STRS’ finances, as well as large bonuses for its investment staff despite teachers’ cost-of-living adjustments being suspended. However, Neville said that a recent special audit of the retirement system by Auditor of State found only two of 29 allegations had merit.

He also cited the auditor’s report, which said Ohio STRS “organizational structure, control environment and operations are suitably designed and well-monitored, both internally and by independent experts.” The report adds that the experts “help assure that STRS follows applicable asset and liability measurement, reporting, investing and cash management laws, professional standards, and best practices.”

In response to the vote, Ohio STRS Board Chair Carol Correthers said that Neville has her complete confidence.

“During the two-and-a-half years Mr. Neville has led STRS, retirees have received a 3% COLA; STRS retiree health care plan enrollees have received premium rebates of $250, $300 and $600, and 95% of enrollees are paying less in premiums in 2023 than they did in 2022,”  Correthers said in a statement. “Additionally, active teachers will no longer be required to work to age 60 to receive their pension. Importantly, STRS has maintained strong funding in both the pension fund and health care fund.”


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