Dear President Biden, Don't Limit American Investment Options: Veto Resolution 8

There’s growing pressure in Congress to prevent new Department of Labor rules from being implemented, and a resolution (formally S.J. Resolution 8) is headed to President Biden’s desk, with an expectation that he will veto it – this might be the first veto of his term.

By removing the prior administration’s restriction on plan managers and providing clear guidance, the new rules would ensure retirement plan managers can appropriately consider and manage E.S.G.-related financial risks, better protect Americans’ retirement saving accounts, and expand the impact of those investments to poor, underserved and marginalized communities who would benefit from it most.

The resolution that passed in the House and Senate would make it harder for ERISA plan managers to build portfolios made up of companies whose business models make our planet, and the people on it, better off. Generally, we call these environmental, social and governance (or E.S.G.) practices that value a company’s efforts to improve the planet and make it more livable for all people. In economic terms, E.S.G. rules help companies assess nonfinancial risk that can have material financial impact to a company and its shareholders. What’s interesting to me is who benefits from these rules and who should care about this rule making process.

Of the estimated $31.6 trillion in corporate equity and mutual fund investments, 90% of shares are owned by just 10% of the wealthiest people in the United States. When you look at this latest data published by the Federal Reserve by racial demographics, we see the same distribution of ownership for white households. These data points underscore the widespread socioeconomic and racial inequity in our economic system. This is not to say that there is not racial diversity in stock ownership, but rather that everyone across the socioeconomic and racial spectrum stands to benefit from an expansion of rules. Systemic inequity gets reinforced by any rules that do not account for the extractive and exploitative company practices of business, particularly those that have been historically disproportionately impacted — namely, Black, Indigenous, Latinx and other People of Color. Passing S.J. Res. 8 means that lawmakers are not interested in changing the economic system to benefit everyone. In fact, they may be upholding systemic inequality over financial returns by supporting the status quo – which favors systems and policies that are unjust, inequitable and racist. These are not the kind of regulations that will benefit future generations.?

Some people argue that the business case for E.S.G. has yet to be proven. At B Lab, we have over 6,000 proof points of companies worldwide – they are Certified B Corporations (or B Corps, for short) – that are managing to balance purpose and profit. Our B Corps include publicly traded American brands like Warby Parker that disrupted an entire industry with its affordable glasses, and have delivered positive impact by giving away over 10 million pairs of glasses through its Buy a Pair, Give a Pair program. Our community also includes small businesses like Greyston Bakery whose innovative open hiring practices are transforming the way other multinational companies like The Body Shop (also a B Corp) go about talent acquisition, reducing turnover and improving employee engagement. These companies understand that integrating better business practices into their business model is simply good business, with a positive impact on people, including their shareholders.

B Corps are companies verified by B Lab that meet high standards of social and environmental performance, transparency, and accountability. When you look more closely at B Corps, you will see a community of businesses that focus on environmental and social issues, while demonstrating they are able to contribute to financial performance in myriad ways, including reduced cost structures, improved reputation, and recognition of growth opportunities. That is why it is important and appropriate that the Department of Labor allow plan fiduciaries to consider these and other effects that social and environmental issues have on the financial performance of the companies in their portfolios.?

Importantly, despite what some have said, the Department of Labor rules neither require nor recommend E.S.G. inclusion in retirement choices. Rather, it simply clarifies that ERISA plan managers may consider E.S.G. factors when making investment decisions, thus preserving the fiduciary responsibility to act in the best interests of investors, as required under law (established under The Employee Retirement Income Security Act of 1974). These rules preserve the choice to invest in better companies, rather than limit the investor options — fundamental principles of a free market.?

Additionally, we believe the prior administration’s uneven rule making in this space threatens to disregard the desires of many investors and further underscores why clear action is needed to assess climate-related financial risks, among others. This is why we support the Prudence and Loyalty in Selecting Plan Investments and Exercising Shareholder Rights rule in its current form. We, therefore, urge President Biden to veto the resolution headed to his desk that would otherwise block the rule from being enacted.