May 16, 2022
Dear Assistant Secretary Khawar,
Americans for Financial Reform Education Fund and the undersigned organizations write in response to the “Request for Information on Possible Agency Actions to Protect Life Savings and Pensions from Threats of Climate-Related Financial Risk” (the “RFI”) from the Employee Benefit Security Administration (EBSA) of the Department of Labor (the “Department” or “DOL”).
We applaud the efforts taken by DOL to date to address climate-related financial risk to retirement savings pursuant to the Executive Order on Climate-Related Financial Risk, including through the 2021 proposed rule to embed Environmental, Social, and Governance (ESG) factors into the fiduciary duties of private retirement plan fiduciaries under the Employee Retirement Income Security Act of 1974 (ERISA). ESG-related systemic risks like climate change and racial and economic inequality represent a significant threat to the economy and especially to those companies and sectors that fail to adapt. The DOL should update its regulations and guidance accordingly and take the following actions. Specifically, we strongly encourage DOL to:
- Strengthen and finalize its ESG fiduciary duty rule on an expeditious timeline;
- Set minimum standards for consideration of climate change, racial and economic inequality, and other systemic risks by ERISA fiduciaries as well as fiduciaries of retirement plans under the Federal Employees’ Retirement System Act of 1986 (FERSA);
- Use Form 5500 Annual Return/Report (“Form 5500”) or a new systemic risk reporting form to collect data on climate-related financial risk to large pension plans;
- Require ERISA and FERSA money managers to explicitly integrate ESG considerations into their proxy voting policies and procedures;
- Include climate change and racial and economic inequality in its risk-based audit program of the Thrift Savings Plan (TSP) to identify risks and vulnerabilities and assess the likelihood and magnitude of harm from these risks; and
- Direct the Federal Retirement Thrift Investment Board (FRTIB) to conduct a rigorous audit of the TSP’s exposure to climate-related financial risk, set science-based emissions targets, and offer climate-friendly investment strategies to participants.
We expand on these recommendations below.