Executive Council Statement | Social Security and Retirement

Pension Plans Need the Freedom to Consider Environmental, Social and Governance Risks and Responsible Workforce Management Principles

Workers’ retirement security is at risk as some Republican lawmakers play politics with working people’s pension plans. By restricting consideration of environmental, social and governance (ESG) risks in investment and proxy voting decisions, these partisan politicians seek control of trillions of dollars in workers’ pension investments.

Pension plans represent the deferred wages of working people and must be invested with prudence and loyalty to provide retirement benefits. The proper stewardship of retirement savings requires the freedom to consider all relevant investment considerations, including ESG risks. Laws and regulations that restrict the ability of retirement plan trustees and asset managers to consider ESG risks directly contradict their fiduciary duties. Fiduciaries, not politicians, should make these judgments.

Some Republican-controlled states have already enacted laws that restrict the freedom of public employee pension plans to consider ESG risks to their investments. And 25 Republican attorneys general have sued to block the U.S. Department of Labor’s regulation that permits private sector pension plans to consider such risks in investment and proxy voting decisions. In addition, these political efforts seek to silence workers’ voices in the governance of corporations by rolling back shareholder rights. Stock ownership includes the right to vote on important issues such as the election of directors, executive compensation and shareholder proposals.

Shareholder proposals on ESG issues such as workforce diversity, environmental sustainability and labor rights are an important part of shareholder democracy. Working people’s retirement savings must not be disenfranchised from exercising these rights.

Workers’ pension plan assets can and should be invested in ways that create broad-based prosperity and a sustainable future. For decades, our pension plan investments have helped create good union jobs, affordable housing and other collateral benefits for communities. Going forward, our pension plans have a tremendous opportunity to invest in sorely needed infrastructure for our nation’s global competitiveness and to power the clean energy transition through investments in both the public and private markets.

When investing in private assets, pension plans need clear rules of the road and access to full and accurate information. The dramatic and rapid growth of private equity as an asset class has been accompanied by increasing criticism of the industry’s business practices and lack of transparency. We strongly support the U.S. Securities and Exchange Commission’s proposed private fund rules for the uniform disclosure of fee and performance data.

We also urge private equity managers to adopt responsible workforce management principles and best practices to ensure that employees are treated fairly and with respect, as an asset to be invested in, not as a liability to be minimized. Companies that invest in their workforce benefit from higher productivity, greater employee retention, improved product quality and increased customer satisfaction. Respecting workers’ rights not only is an international human rights obligation but makes good business sense.

Retirement plan assets must be invested for the exclusive purpose of providing promised retirement benefits. Prudent investment requires the consideration of all relevant information, including ESG risks. Private equity investments will benefit from the adoption of responsible workforce management principles to address these risks and help build a sustainable and inclusive economy that provides broad-based prosperity for all.