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Letter to Eugene Scalia, Secretary of the Department of Labor - Levin, DelBene and Boyle to Department of Labor: Protect Socially-Responsible Investing


Dear Secretary Scalia,

We, the undersigned, write in strong opposition to the Department of Labor's (DOL) recently
proposed rule pertaining to environmental, social, and governance (ESG) investing. This
proposed rule drastically shifts the landscape of responsible, social investing and cuts at the
freedom of private entities to invest based on their individualized priorities.

By preventing entities governed by the Employee Retirement Income Security Act (ERISA)
from investing with ESG principles, the DOL has not only engaged in an overreach into the
actions of private businesses, but it has also significantly burdened those engaging in a practice
that has proven beneficial.

ESG investments presently account for only .1% of the total assets in defined contribution plans
according to the Department of Labor, but there is increasing interest in them. In the United
States, "mutual funds focused on sustainable investing attracted more than $20 billion in assets
in 2019, more than 4 times the flows in 2018." The DOL neglects current conventional wisdom
in investing and seeks to impose their political principles on private entities. ESG investing is
sustainable, responsible, impactful, and has documented financial benefits. Professional trends in
financial investing point towards an increased emphasis on ESG investing to account for future
returns, growth, and sustainability.

The NPRM cites research from Morningstar indicating increases in the use of the term "ESG"
among institutional asset managers; in the array of ESG-focused investment vehicles available;
in the number of ESG metrics, services, and ratings offered by third-party service providers; and
in the asset flows into ESG funds. The NPRM suggests that these trends are evidence of illadvised
decision-making on the basis of ESG factors. It states: "The Department is
concerned…that the growing emphasis on ESG investing may be prompting ERISA plan
fiduciaries to make investment decisions for purposes distinct from providing benefits to
participants and beneficiaries and defraying reasonable expenses of administering the plan." It
also asserts, "providing a secure retirement for American workers is the paramount, and
eminently-worthy, "social' goal of ERISA plans; plan assets may not be enlisted in pursuit of
other social or environmental objectives."

The NPRM fails to note, however, that Morningstar also found that funds based on
environmental, social and governance goals outperformed conventional offerings during 2019
and the first quarter of this year. Indeed, John Hale, the head of sustainability research at
Morningstar, said in reference to the NPRM, "Not only could investments that focus on the longterm sustainability of companies lead to truly long-term outperformance because you're picking
better quality companies…But there is also the systems argument, that you're helping to create a
financial system and economy that will be more successful."

There is little to suggest that workers sacrifice returns by investing in ESG funds. In fact, "a
growing body of evidence suggests that using sustainable investments generally has not reduced
risk-adjusted returns to date. In a recent study, Morningstar researchers found that investors that
focus on companies with positive ESG attributes generally do not sacrifice returns, although
there may be a small ESG premium in the U.S. A Government Accountability Office metaanalysis
found that 88% of studies of the relationship between ESG factors and financial
performance found that using ESG information does not reduce financial returns. In short,
picking investments that score better on ESG metrics at the margin or as a tie-breaker could be a
reasonable strategy for investors who want their investments to reflect their values."

Moreover, the Department's ESG proposal runs directly counter to the Administration's recent
investment instructions to the Thrift Savings Plan ("TSP") providing retirement benefits to
millions of the federal government's own employees. On May 11, 2020, based on a letter from
the White House citing humanitarian concerns, you sent a letter to the Chairman of the Federal
Retirement Thrift Investment Board ordering him to halt all steps that would result in the TSP
investing the "I" Fund in Chinese companies. Two days after receiving these letters, the Federal
Retirement Thrift Investment Board adhered to your request.

While the investment directions conveyed in the above-described letters cited some economic
concerns with Chinese investment, they overwhelmingly emphasized "nonpecuniary" concerns
with how the TSP's planned investment could benefit "military activities, espionage, and human
rights abuses by the Chinese government," among other non-economic factors, such as the
"Chinese government's concealment of critical information concerning the novel coronavirus."
This reliance on nonpecuniary factors is in direct conflict with the approach in the proposed

As we seek to incentivize more responsible corporate structures and behavior, ESG has been a
successful, free-market tool with which investors have been able to generate positive change. We
reiterate our opposition to this rule and encourage the Administration to withdraw it. If you
choose to continue with the proposed rule, we strongly urge you to extend the comment period
from 30 days to 90 days to allow stakeholders reasonable time to analyze the proposal and
provide sufficient and helpful feedback. We look forward to working with the DOL to develop
rules that strengthen ERISA plans rather than hinder them.