In October 2015, the Department of Labor (DOL) issued Interpretive Bulletin 2015-01 to provide guidance on the investment duties of plan fiduciaries under the Employee Retirement Income Security Act (ERISA) when considering economically targeted investments (ETIs) and investment strategies that take into account environmental, social and governance (ESG) factors. In doing so, the DOL rescinded the prior bulletin on ETI issued in October 2008, which had arbitrarily disfavored the consideration of ESG risks and opportunities in assessing potential investments.shareholder_rights Interestingly, while the DOL rescinded the 2008 ETI bulletin, they left intact its sister bulletin relating to the exercise of shareholder rights also issued in October 2008. This bulletin sets forth the DOL’s interpretation of those ERISA sections that apply to voting proxies. It provides guidance on the appropriateness under ERISA of active monitoring of corporate management by plan fiduciaries.

Friends Fiduciary believes the 2008 Shareholder Rights Bulletin constrains fiduciaries’ ability to act on their judgment to mitigate long-term risk through shareholder engagement. Therefore, FFC signed a letter to DOL Secretary Thomas Perez asking to rescind the 2008 Shareholder Rights Bulletin because it dismisses the positive value that fiduciaries can help create through the exercise of shareholder rights, it is impractical and may impose additional and unnecessary costs on funds, and it is inconsistent with the 2015 ETI Bulletin – which sets forth an appropriate road map for addressing the integration of ESG factors into the exercise of shareholder rights. Many fiduciaries have articulated and demonstrated the use of shareholder engagement in a manner consistent with duties of loyalty and prudence and with the goal of increasing long-term risk-adjusted returns.Friends Fiduciary hopes the industry and the DOL can move forward to implement new guidance that is consistent with the 2015 ETI Bulletin and more representative of today’s financial markets. In his own words, Secretary Perez said, “Changes in the financial markets since that time [2008], particularly improved metrics and tools allowing for better analyses of investments, make this the right time to clarify our position.”