H. R. 3604
IN THE HOUSE OF REPRESENTATIVES
May 28, 2021
Mr. Levin of Michigan (for himself, Mrs. Axne, Mr. Brendan F. Boyle of Pennsylvania, and Mr. García of Illinois) introduced the following bill; which was referred to the Committee on Education and Labor
To amend the Employee Retirement Income Security Act of 1974 to enable consideration and disclosure by retirement plans of Sustainable Investment Policies.
This Act may be cited as the
Retirees Sustainable Investment Opportunities Act of 2021.
The Congress finds the following:
There is now incontrovertible evidence that environmental, social, and governance (hereinafter in this Act referred to as
ESG) factors can have material and substantial effects on investment performance.
The United States Department of Labor which is responsible for administering and enforcing the Employee Retirement Security Act of 1974 has historically recognized that retirement plans may make economically targeted investments (
ETIs), that is, investments that offer the potential for economic benefits, such as local job creation, community economic development, and affordable and workforce housing construction, in addition to investment returns, provided such investments otherwise comply with ERISA’s fiduciary requirements.
ESG and ETI-related factors are referred to in this Act as
sustainability considerations and investments guided by sustainability considerations are referred to as
sustainable investments. Sustainable investments have the potential to contribute to the long-term well-being and resilience of individuals and communities in this nation and around the world while earning investment returns comparable to or better than investments with similar risk that do not take these factors into account.
Sustainable investing is now among the fastest growing segments of the investment industry with broad and growing interest from both individual investors and institutional asset managers. Nevertheless, sustainable investments are virtually absent from ERISA-regulated retirement plans in the United States.
Retirement plans and participants in individual account retirement plans should have the opportunity to make and hold sustainable investments, provided ERISA’s fiduciary requirements are otherwise met.
Accordingly, fiduciaries for retirement plans should—
incorporate all relevant factors, including sustainability-related factors, into investment analysis and decision-making processes, consistent with the investment time horizons of plan participants and beneficiaries;
be permitted to consider factors relevant to sustainability, whether or not they can be demonstrated to be financially material, provided doing so does not diminish anticipated investment returns or increase investment risk and is otherwise consistent with ERISA’s fiduciary requirements;
encourage the adoption of best practices for sustainability performance and sustainability impacts in the companies or other entities in which they invest;
consider plan participants’ and beneficiaries’ sustainability-related interests and preferences when making investment decisions;
consider the impact of plan investments on the stability and resilience of the financial system and on broad market returns as a result of the sustainability characteristics of those investments;
consider participation in shareholder engagement and proxy activities, policy advocacy and similar actions based on sustainability considerations; and
disclose how they have implemented these commitments.
The purpose of this Act is to enable retirement and welfare benefit plans and participants in individual account retirement plans that are covered by the Employee Retirement Income Security Act of 1974 (29 U.S.C. 1001 et seq.), to make and hold sustainable investments, consistent with the fiduciary standards, requirements, and procedures of said Employee Retirement Income Security Act.
Amendments to the Employee Retirement Income Security Act of 1974
Disclosure of sustainable investment policies
Section 102 of the Employee Retirement Income Security Act of 1974 (29 U.S.C. 1022) (
ERISA) is amended in subsection (b), by inserting
a statement of whether or not the plan has adopted a sustainable investment policy pursuant to section 402(b)(5) of ERISA; after
collective bargaining agreement;.
Establishment of sustainable investment policy
Section 402 of the Employee Retirement Income Security Act of 1974 (29 U.S.C. 1102) is amended—
in subsection (b)—
in paragraph (3), by striking
in paragraph (4), by striking the period and insert
, and; and
by inserting after paragraph (4) the following:
adopt a sustainable investment policy of the plan in accordance with subparagraph (d), provided a plan may elect not do so if it gives notice to plan participants or beneficiaries in writing of such election
by adding after subsection (c) the following:
A sustainable investment policy under subsection (b)(5) shall address sustainability considerations including, without limitation, the following:
Economically targeted investment considerations including, the potential for achieving economic benefits, such as local job creation, community economic development, and affordable and workforce housing construction, in addition to investment returns.
Social considerations including—
characteristics of workforces employed by entities in which the plan invests, including compensation and benefits, health and safety, diversity and demographics, skills and training, retention and turnover, full-time and part-time employment, and the use of independent contractors;
labor and human rights compliance by entities in which the plan invests, including workers’ freedom of association, the right to collectively bargain, and the prevention of employment discrimination, child labor, and forced labor in company operations and supply chains;
due diligence and practices regarding supply chain management, including environmental, human rights, and worker compensation considerations; and
the implementation, to the extent practicable, of practices which enhance diversity and inclusion within the workforce, senior leadership, business procurement, and philanthropy.
Environmental considerations including—
the potential to reduce and ultimately eliminate net greenhouse gas emissions associated with business activities and to mitigate exposure to climate-related risks to the businesses, assets and properties of entities invested in by the plan;
the potential to mitigate other climate-related and associated environmental harms and risks, such as industrial pollution, habitat destruction, deforestation, species endangerment and extinction, and other forms of environmental degradation;
the potential to address and rectify issues of environmental justice and the inequitable environmental impacts of certain business operations on historically disadvantaged communities; and
the potential to provide workers affected by the shift to a low carbon economy with a just transition by creating decent work and quality jobs.
Governance considerations including—
corporate governance practices by entities in which the plan invests, including executive compensation, board diversity, worker board representation and codetermination, the independence of board chairs, political spending and lobbying disclosure; and
tax practices of entities in which the plan invests, including international tax avoidance strategies and tax payment disclosure.
Other relevant economically targeted investment, environmental, social, and governance considerations and factors.
A plan shall be deemed to have adopted a sustainable investment policy for the purposes of subsection (b)(5) if it incorporates the sustainability considerations set forth in subsection (d)(1) into a previously adopted investment policy of the plan or if the plan elects to be governed by a sustainable investment policy otherwise meeting the requirements of subsection (d)(1) adopted by a third-party fiduciary to the plan.
A plan that has adopted a sustainable investment policy pursuant to subsection (b)(5), including plans relying on subsection (d)(2), shall conduct a review of such policy on an annual basis.
Utilization of certain sustainability considerations
Section 404 of the Employee Retirement Income Security Act of 1974 (29 U.S.C. 1104) is amended in subsection 404(a) by adding after subsection (2) the following:
This subsection 404(a) shall not be construed to prohibit a plan fiduciary from doing the following:
In choosing among investments with comparable degrees of risk and rates of return, selecting one or more such investments based on one or more sustainability considerations as set forth in section 402(d)(1), regardless of whether such considerations are determined to be financially material. For the purposes hereof, the determination that investments have comparable degrees of risk and anticipated rates of return shall be a determination that a prudent man acting in like capacity and familiar with such matters could reasonably be expected to make on a forward-looking basis.
Incorporating sustainability considerations into the monitoring of or decisions regarding the disposition of plan investments.
Exercising proxy voting rights in accordance with the plan’s proxy voting guidelines which may include sustainability considerations.
Considering as financially material to retirement benefits the potential for increased contributions to the plan resulting from a plan investment.
Individual account plans
Section 404 of the Employee Retirement Income Security Act of 1974 (29 U.S.C. 1104) is amended in subsection 404(c)(1) by adding after subsection (C) the following:
In selecting investment alternatives for individual accounts, including investment alternatives meeting the requirements of section 404(c)(5) of this title, a plan fiduciary may include investment alternatives selected in part on the basis of sustainability considerations as set forth in section 402(d)(1) regardless of whether such considerations are determined to be financially material, provided any such alternative is determined to have a degree of risk and anticipated rate of return comparable to other investments of similar type determined by the fiduciary to be available and appropriate for inclusion in the plan. For the purposes hereof, the determination that investments have comparable degrees of risk and rates of return shall be a determination that a prudent man acting in like capacity and familiar with such matters could reasonably be expected to make on a forward-looking basis.
Establishment of sustainable investment policy technical assistance program
Not later than 90 days after the date of enactment of this Act, the Assistant Secretary of Labor for Employee Benefits shall establish a technical assistance program to provide educational materials and technical assistance to plans to comply with the amendments made by this Act.