US updates ESG & voting guidance for ERISA funds

US regulators have responded to concerns that employee pension plans have not been exercising their shareholder rights by issuing updated guidance on proxy voting for 2017.

The Department of Labor’s Employee Benefits Security Administration (EBSA) agency said that it is has long believed that it is important for plan administrators to know what their responsibilities are when they vote proxies on those shares or exercise other shareholder rights. The EBSA said that its previous guidance had been out of step with domestic and international trends in investment management and had the potential to dissuade fiduciaries from exercising shareholder rights, including the voting of proxies, in areas that were increasingly being recognised as important to long-term shareholder value.

Phyllis C Borzi - ERISA Regulator

Phyllis C. Borzi, Assistant Secretary for Employee Benefits Security of the United States Department of Labor, the official in charge of the Employee Benefits Security Administration

The EBSA released its new guidance,  Interpretive Bulletin 2016-01, in December and  which withdraws IB 2008-2 and reinstates earlier guidance related to such proxy voting, but with certain updates to clarify what the law requires of plan fiduciaries. The EBSA said this would better assist plan fiduciaries in understanding and satisfying their obligations under the Employee Retirement Income Security Act with respect to proxy voting and shareholder engagement.

Phyllis Borzi, Assistant Secretary of Labor for Employee Benefits Security, said: “Plan fiduciaries can often enhance and protect the interest of plan participants and beneficiaries by responsibly exercising their rights as shareholders.  This guidance removes perceived impediments to the prudent management of plans’ rights as shareholders, and encourages fiduciaries to manage those rights in the best interest of plan participants and beneficiaries.

Despite recent EBSA  guidance on economically targeted investment issues provided in IB 2015-1, this latest bulletin aims to remove what the EBSA felt was continuing confusion as to whether and how plan fiduciaries can consider environmental, social and governance (ESG) issues in connection with proxy voting or undertaking other shareholder engagement activities.

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