In an effort to mandate socially responsible investing in retirement savings strategies, Rep. Andy Levin, D-MI, introduced two new bills in December 2020: The Sustainable Investment Policies Act (SIPA) and the Retirees Sustainable Investment Policies Act (RSIPA). The legislation would require advisors adopt policies explaining the role environmental, social, and governance (ESG) factors play in retirement planning. In addition, it also would modify the Investment Advisers Act and Employee Retirement Income Security Act such that advisers are required to maintain an environmental, social, and governance policy and publish that policy with the SEC.
What This Legislation Contains
The Sustainable Investment Policies Act would require investors and fiduciaries to consider ESG factors when making investments covered by the Investment Advisers Act of 1940. The Retirees Sustainable Investment Policies Act considers the same factors as they apply to investments covered under the Employee Retirement Income Security Act of 1974.
Under this legislation, investors will need to consider six different factors when choosing retirement plans or advising their clients:
- Worker wages, compensation, and benefits at the companies they’re investing in
- Worker rights, corporate decision-making, and collective bargaining agreements
- Environmental risks
- Tax practices, including tax reporting by companies and funds on a per-country basis
- Supply chain management, including human rights and worker’s compensation considerations
- The incorporation of sustainability preferences held by the investor or retirement plan’s beneficiaries, regardless of the financial relevance of those preferences.
Investors and fiduciaries will also be required to prepare statements on all these factors, then publish those statements so that their clients and investors can make educated decisions about where they put their money.
Benefits of This Legislation
There are two primary purposes for this legislation. The first is to help ensure the long-term sustainability of investments that might be used to back up retirement accounts or pension funds. If 401(k) plan administrators and others know that their plan is invested in stable companies and ESGs, they can be more confident that the value of their employees’ retirement accounts will remain stable.
The second is to allow investors at every level to invest their money more carefully. Today’s investors are also more interested in investing in ways that align with their values.
For example, news broke last year that 83 major brands, both in China and in the United States, had benefited from forced labor on the part of the Uyghur population of China. For investors, the ability to factor in these business practices when selecting an investment is important. This new legislation allows them the opportunity to make informed decisions based on similar information.
Investing With Purpose
In recent years, there has been a significant impetus among investors to find investment vehicles that deliver not only positive financial returns but also support companies who operate in a sustainable and ethical manner. According to Morningstar, sustainable funds in the United States brought in four times as many assets in 2019 as they did in 2018, with a 600 percent increase over the last decade.
Socially responsible investing (SRI) is on the rise across the board, from family offices to university endowments. Investors—often in concert with civil society organizations and multi-stakeholder groups—have helped persuade numerous publicly held companies to:
- improve climate risk disclosure, set greenhouse gas emission reduction goals, adopt goals to reduce energy use or to use renewable energy
- implement sustainable forestry practices
- address poor labor and human rights conditions in their global supply chains
- pledge not to discriminate against employees on the basis of their sexual orientation
- disclose health, safety, and environmental risks associated with hydraulic fracturing
- promote gender diversity on their boards of directors
- issue detailed reports on sustainability
- report on political and lobbying expenditures and establish policies to oversee or limit such spending, and
- provide investors who meet specified ownership criteria with access to their proxy materials in order to nominate alternative directors to the board.
Talk to First Western Trust Bank
At First Western, we pride ourselves on our holistic approach to your financial planning. Your wealth isn’t just about the number on the bottom line of your balance sheet, it’s about planning for the future, prioritizing the people you care about, and supporting the values that are most important to you.
If you’re ready to start investing with purpose, get in touch with First Western today. We can help you create a plan and a portfolio that reflect not only your personal goals but also your broader values with respect to the companies in which you invest.