Providing for Congressional Disapproval of the Rule Submitted By the Department of Labor Relating to ``Prudence and Loyalty in Selecting Plan Investments and Exercising Shareholder Rights''

Floor Speech

Mr. Speaker, I rise in opposition to H.J. Res. 30, a Congressional Review Act joint resolution of disapproval to nullify a popular and sensible rule issued by the Biden-Harris administration last year.

Workers should be able to invest their retirement savings in a way that reflects their values, such as combating climate change, without sacrificing investment returns.

That is why the Biden-Harris administration issued a rule to clarify that retirement plan fiduciaries may consider the economic effects of climate change and other environmental, social, and governance factors, or ESG factors, when they make investment decisions for participants in retirement plans.

Now, to be clear, this rule is not an ESG mandate.

Additionally, the rule does not change the fiduciary standard to which professionals who make investment decisions for retirement plans are bound. They must still prioritize the interests of retirement plan participants and cannot sacrifice investment returns to pursue ESG goals.

Let's be clear. Consideration of ESG factors is not at odds with making a profit. In fact, workers' profit is still central, but if a company has negative externalities, such as carbon-intensive business practices, vulnerability to sea level rise, high liability risks, or a record of mistreating workers who may go on strike, its stock could suffer in the long term.

Workers often contribute to their retirement for decades before drawing down on their savings, so it makes sense that retirement plan beneficiaries must consider the long-term time horizon when making investment decisions.

Finally, there is widespread support for the Biden-Harris administration's rule. Of the comment letters submitted on the proposed rule, 83 percent of the letters submitted by institutions like corporations, financial firms, and labor organizations supported the rule.

Over 97 percent of the letters submitted by individuals supported the rule. Simply put, the Biden-Harris rule reflects the best interests of the American people and our economy.

We should not get rid of this popular and reasonable rule by this resolution. The rule just simply allows retirement plan fiduciaries to appropriately consider ESG factors.

Retirement fiduciaries, not House Republicans, are best positioned and bound by law to make prudent investment decisions on behalf of retirement savers.

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Mr. SCOTT of Virginia. Omar), a distinguished member of the Committee on Education and the Workforce.

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Mr. SCOTT of Virginia. Mr. Speaker, I am prepared to close, and I reserve the balance of my time.

Mr. Speaker, during this debate, we have heard a lot about ESG investing. It is clear there is a difference of opinion on it, but whether Members of Congress see things the same way is not the point.

What matters is that the Biden-Harris rule puts the decisionmaking when it comes to considering ESG factors where it belongs, in the hands of retirement plan fiduciaries who are best positioned and bound by law, which has not changed, to act prudently on behalf of plan participants. That is where the decisionmaking should stay.

They, not Members of Congress, know what is in the best interests of their plan participants, and they are bound by their fiduciary responsibilities to do the right thing.

Now, when supporters say that a fiduciary should not consider nonpecuniary factors, they ignore the fact that ESG factors can, in fact, be pecuniary, because often ESG factors, such as sea level rise, can have a profound effect on the value of the investment. Those who recognize this should be able to make reasonable investments based on that knowledge.

Mr. Speaker, I include in the Record several letters from organizations opposed to H.J. Res. 30. Eighty-three percent of institutions that submitted comments were in favor of the underlying rule. These organizations, who are opposed to H.J. Res. 30, include the AFL-CIO, Americans for Financial Reform, Public Citizen, SEIU, Environmental Defense Fund, League of Conservation Voters, Sierra Club, Natural Resources Defense Council, Union of Concerned Scientists, and others. AFL-CIO, Legislative Alert, February 16, 2023.

Dear Representative: On behalf of the AFL-CIO, we urge you to oppose the Congressional Review Act joint resolution that has been introduced by Sen. Mike Braun and Rep. Andy Barr to disapprove of the Department of Labor's recently adopted rule ``Prudence and Loyalty in Selecting Plan Investments and Exercising Shareholder Rights'' (SJ. Res. 8, HJ. Res. 30).

The Department of Labor's rule clarifies that private sector retirement plan fiduciaries may consider environmental, social and governance (``ESG'') factors when making plan investments or voting proxies. The rule does not require that retirement plan fiduciaries consider ESG factors, it simply acknowledges the fact that ESG factors may be relevant to investment returns.

Indeed, the consideration of ESG factors helps protect the hard-earned retirement savings of working people. ESG risks are particularly relevant for long-term investors, such as retirement plans, who are investing over the expected lifespans of their participants and beneficiaries. For this reason, ignoring ESG risks to an investment portfolio may be financially imprudent.

Contrary to what some would have you believe, investment professionals' consideration of ESG factors is not limited to environmental risks, such as climate change. Social issues such as respect for workers' rights and governance issues such as having responsible executive compensation can also impact sustainable investment returns.

The rule affirms that proxy votes should be cast in the best interests of plan participants and beneficiaries, thereby giving workers' retirement savings a voice in corporate decision making. The rule also ensures that the default investment for defined contribution plans is the best option available regardless of whether the investment considers ESG factors.

Finally, the rule clarifies when retirement plan fiduciaries may consider benefits other than investment returns. These benefits can include the creation of good jobs, affordable housing, and economic growth for local communities. Such benefits may only be considered as tiebreakers between competing investments that equally serve the financial interests of the plan.

This rule makes clear that any consideration of ESG factors must be consistent with the fiduciary duties of loyalty and care. Retirement plan fiduciaries cannot sacrifice risk- adjusted investment returns under any circumstances. The rule appropriately holds the consideration of ESG factors to the exact same documentation requirements as any other fiduciary decision.

The decision of whether to consider ESG factors should be left to investment professionals, not politicians. Trillions of dollars in assets under management already take ESG factors into consideration when making investment decisions. Congress should not interfere in the free market by seeking to prohibit the consideration of ESG factors.

For these reasons, we strongly urge you to oppose disapproval of the Department of Labor's rule ``Prudence and Loyalty in Selecting Plan Investments and Exercising Shareholder Rights.'' Congress should not play politics with our pension plans by repealing this commonsense rule. Sincerely, William Samuel, Director, Government Affairs. ____ Americans for Financial Reform, February 24, 2023. Hon. Chuck Schumer, Senate Majority Leader, U.S. Senate, Washington, DC. Hon. Kevin McCarthy, Speaker of the House, House of Representatives, Washington, DC. Chairman Bernie Sanders, HELP Committee, U.S. Senate, Washington, DC. Chairwoman Virginia Foxx, Education and the Workforce Committee, House of Representatives, Washington, DC. Hon. Mitch McConnell, Senate Minority Leader, U.S. Senate, Washington, DC. Hon. Hakeem Jeffries, House Minority Leader, House of Representatives, Washington, DC. Ranking Member Bill Cassidy, HELP Committee, U.S. Senate, Washington, DC. Ranking Member Bobby Scott, Education and Workforce Committee, House of Representatives, Washington, DC.

Dear Senate Majority Leader Schumer, Senate Minority Leader McConnell, House Speaker McCarthy, House Minority Leader Jeffries, HELP Committee Chairman Sanders, HELP Ranking Member Cassidy, House Education and the Workforce Committee Chairwoman Foxx, and House Education and the Workforce Committee Ranking Member Scott: The undersigned organizations urge you to defend the Department of Labor's important fiduciary rule that safeguards the savings of millions of workers who participate in private-sector employee benefit plans. The rule, titled ``Prudence and Loyalty in Selecting Plan Investments and Exercising Shareholder Rights,'' has four main components: 1) removes costly and impractical record-keeping burdens on fiduciaries to ensure those who manage workers' money have the flexibility needed to consider all financially relevant risks and opportunities; 2) allows consideration of collateral benefits such as creating union jobs only if different investment options equally serve the financial interests of the plan over the appropriate time horizon; 3) increases workers' investment choices within the confines of ERISA's stringent protections; and 4) removes costly and unnecessary barriers to the exercise of shareholder rights.

A vote in favor of a Congressional Review Act (CRA) resolution to nullify the rule is an affirmative vote for unworkable, burdensome Trump-era rules. Trump-era rules erected ``needless barriers'' and had a ``chilling effect . . . on considering environmental, social and governance factors in investments'' that are financially relevant. The Trump rules also put the thumb on the scale against workers' ability to exercise their shareholder rights, diluting workers' shareholder voice. Additionally, three lawyers, all experts in ERISA, recently published a paper that included an in-depth analysis of why the distinction between ``pecuniary'' and ``non-pecuniary,'' first introduced in the Trump-era rules and ``roundly criticized during the rulemaking comment process,'' is self-contradictory and unworkable.

The Biden DOL rule repeatedly affirms the core ERISA tenet: that fiduciaries are not allowed to sacrifice returns in the pursuit of collateral benefits. The Biden rule returns power to fiduciaries to make the best decisions regarding relevant risks and returns in their participants' best interests, in contrast to the Trump-era rules, which sought to inject politics into fiduciary decision-making.

The CRA resolution is part of a larger, failing effort to imbue ``ESG'' with false meaning, vilify it, and legislate against it. This effort is backed by powerful corporate interests--including fossil fuel companies looking to postpone the inevitable decarbonization of the economy--that are attempting to roll back progress that has been made on climate change, workers' rights, racial equity, and other ESG issues with clear financial implications. They are doing so by pushing legislation and other policies that hurt both workers' hard-fought pensions and taxpayers.

This effort is unpopular--with 63 percent of voters agreeing the government should not set limits on corporate ESG investments, including 70 percent of Republicans and 57 percent of Democrats--and has suffered numerous, recent failures including: 1) Indiana's budget office finding that a bill forcing pension funds to divest from asset managers that consider ESG factors would cost $6.7 billion over the next decade in sub-market returns, force retirees to increase their contributions, and impose an additional $550,000 administrative costs a year; 2) Arizona Attorney General Kris Mayes announcing Arizona will no longer participate in investigations into banks and other financial institutions over ESG investing practices, stating that she believes ``it is not the place of government to tell corporations and their investors that they cannot invest in sustainable technologies and practices or improve their governance processes; 3) a study finding that a 2021 Texas investment blacklist would cost municipalities an additional $303 million to $532 million in bond interest; and 4) North Dakota voting down, 90-3, a Texas-style bill that would have required the state treasurer to prepare a blacklist of financial firms that have committed to reducing carbon emissions.

For all the reasons stated above, we urge you to protect workers' pensions from anti-ESG attacks and vote no on the CRA resolution. For further discussion, please contact Natalia Renta. Sincerely,

Americans for Financial Reform; Public Citizen; 1worker1vote; 350Hawaii; 7 Directions of Service; Abacus Wealth Partners; Adrian Dominican Sisters, Portfolio Advisory Board; American Family Voices; American Sustainable Business Network; As You Sow; B Lab U.S. & Canada; California Reinvestment Coalition; Change Finance; Change the Chamber; Climate Finance Action; Climate Hawks Vote.

Community Development Venture Capital Alliance; Congregation of St. Joseph; Connecticut Citizen Action Group (CCAG); Consumer Federation of America; Daughters of Charity, Province of St. Louise; Demand Progress; Divest Oregon; Earth Action, Inc.; Earthjustice; Florida for Good; Fresh Water Accountability Project; Future Nexus; Green America; Harrington Investments, Inc.; Honor the Earth; Intentional Endowments Network.

Interfaith Center on Corporate Responsibility (ICCR); Kingdom Living Temple Church; League of Conservation Voters; Mercy Investment Services, Inc.; Montana Environmental Information Center; National Community Investment Fund; National Employment Law Project; Natural Investments LLC; New Alpha Community Development Corporation; NYU Stem Center for Business and Human Rights; Oil & Gas Action Network; Omidyar Network; Opportunity Finance Network; Oxfam America; Pensions & Investment Research Consultants, Ltd.; Physicians for Social Responsibility--Pennsylvania.

Predistribution Initiative; Rabbis and Cantors Retirement Plan; Revolving Door Project; Rights CoLab; Sciencecorps; Seventh Generation Interfaith Coalition for Responsible Investment; Sierra Club; Shareholder Rights Group; SOC Investment Group; Socially Responsible Investment Coalition; The B Team; Toniic Institute; Trillium Asset Management; Union of Concerned Scientists; U.S. Impact Investing Alliance; Whitney M. Slater Foundation; Zero Hour. ____ SEIU, Washington, DC, February 21, 2023.

Dear Senator: On behalf of the two million members of the Service Employees International Union (SEIU), I write to oppose S.J. Res. 8 and H.J. Res. 30, the Congressional Review Act joint resolution(s) that have been introduced by Senator Mike Braun and Rep. Andy Barr to disapprove of the Department of Labor's recently adopted rule entitled ``Prudence and Loyalty in Selecting Plan Investments and Exercising Shareholder Rights.'' The rule clarifies that private sector retirement plan fiduciaries may consider environmental, social and governance (``ESG'') factors when making plan investments or voting proxies. The rule does not require that retirement plan fiduciaries consider ESG factors, it simply acknowledges the fact that ESG factors may be relevant to investment returns. Further retirement plan fiduciaries cannot sacrifice risk-adjusted investment returns under any circumstances. The rule appropriately holds the consideration of ESG factors to the exact same documentation requirements as any other fiduciary decision.

The consideration of ESG factors helps protect the hard- earned retirement savings of working people. ESG risks are particularly relevant for long-term investors, such as retirement plans, who are investing over the expected lifespans of their participants and beneficiaries. Ignoring ESG risks, or pretending that they don't exist, may be financially imprudent to an investment portfolio and could end up with long term consequences. Contrary to outlandish claims by those who oppose the rule, investment professionals' consideration of ESG factors that could impact sustainable investment returns is not limited to environmental risks, such as climate change, but could also include other societal issues such as respect for workers' rights, or even governance issues such as having responsible executive compensation.

The rule also affirms that proxy votes should be cast in the best interests of plan participants and beneficiaries, therefore giving workers' retirement savings a voice in corporate decision making. The rule also ensures that the default investment for defined contribution plans is the best option available regardless of whether the investment considers ESG factors. Finally, the rule clarifies when retirement plan fiduciaries may consider benefits other than investment returns. These benefits can include the creation of good jobs, affordable housing, and economic growth for local communities. These benefits may only be considered as tiebreakers between competing investments that equally serve the financial interests of the plan.

The rule makes clear that any consideration of ESG factors must be consistent with the fiduciary duties of loyalty and care. The decision of whether to consider ESG factors should be left to investment professionals, and Congress should not interfere by prohibiting the consideration of ESG factors. For these reasons, we urge you to oppose and vote against S.J. Res. 8 and H.J. Res. 30. We will add any votes on this legislation to our legislative scorecard for the 118th Congress. Sincerely, John Gray, Legislative Director. ____ House of Representatives, Washington, DC, February 27, 2023.

Dear Representatives: Americans work hard for their retirement savings and need to be able to trust that their 401(k) and pension plans can be managed to prudently account for all financial risks. That is why the Department of Labor (DOL) issued a rule in November 2022 to ensure that retirement plan managers can consider all factors relevant to investment risk and return in their decision-making, including financial risks due to climate change. H.J. Res. 30, the Congressional Review Act (CRA) resolution to block the DOL rule, is a threat to Americans' retirement savings. Our organizations urge all Representatives to oppose H.J. Res. 30.

Congress passed the Employee Retirement Income Security Act of 1974 (ERISA) to protect the hard earned retirement savings upon which workers and their families rely. For decades, DOL's ERISA rules set forth retirement plan managers' core duty to prudently consider all relevant factors, while remaining neutral on investment types. In 2020, the Trump Administration deviated from this longstanding approach by issuing ERISA rules that discouraged consideration of environmental, social, and governance (ESG) factors--even when these factors affect investment risk and return.

The 2022 DOL rule under ERISA returns to neutrality, in which plan managers can consider all relevant factors to assess investment risk. The rule does not mandate, prohibit, encourage, or discourage any particular type of investment. The rule is clear that retirement plan managers must base their decisions on financial risk-return factors. Those financial factors may include the financial risks and economic impacts of changing climate and other environmental, social and governance factors.

The DOL rule is supported by diverse groups including the AFL-CIO, investment managers like Vanguard and TIAA, and the American Retirement Association. President Bush's Assistant Secretary of Labor, Bradford Campbell stated that ``the new rule is more consistent with the regulatory history than the 2020 rule was.'' Public comments submitted demonstrate overwhelming and broad support for the Department of Labor rule.

The DOL rule restores plan managers' freedom to consider all financially relevant factors, including financial risks due to climate change, so they can offer prudent investment choices to workers. American workers deserve no less.

Congress: protect Americans' retirement savings by voting NO on this CRA resolution H.J. Res. 30. Sincerely,

Environmental Defense Fund, League of Conservation Voters, Americans for Financial Reform, California Reinvestment Coalition, Center for American Progress, Ceres Accelerator for Sustainable Capital Markets, Change the Chamber, Clean Water Action, Climate Action Campaign, Climate Hawks Vote, Earthjustice, Evergreen Action, Natural Resources Defense Council, Public Citizen, Sierra Club, Union of Concerned Scientists, WWF.

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Mr. SCOTT of Virginia. Mr. Speaker, these organizations have diverse missions, but they all agree that H.J. Res. 30 should be rejected.

Mr. Speaker, I include in the Record two letters from financial services firms who submitted supportive comments on the underlying rule. These firms are BNY Melon Investment Management and Lazard Asset Management, who have trillions of dollars in assets under management. BNY Mellon, December 13, 2021. Office of Regulations and Interpretations, Employee Benefits Security Administration, U.S. Department of Labor, Washington, DC.

On behalf of BNY Mellon Investment Management, thank you for the opportunity to submit comments on the notice of proposed rulemaking entitled ``Prudence and Loyalty in Selecting Plan Investments and Exercising Shareholder Rights'' (the ``Proposal'') published by the U.S. Department of Labor (the ``Department''). We strongly support the Department's efforts to clarify the regulatory treatment of environmental, social, and governance (``ESG'') factors under Title I of the Employee Retirement Income Security Act of 1974, as amended (``ERISA'') following the publication of ``Financial Factors in Selecting Plan Investments'' and ``Fiduciary Duties Regarding Proxy Voting and Shareholder Rights'' (together, the ``Current Rules''). To continue the Department's efforts to add clarity to the use of ESG factors by fiduciaries we suggest the Department add clarification in the rule or preamble that a fiduciary can use a screen to consider ESG factors based on the fiduciary's determination that a particular ESG factor will impact investment value consistent with Section 2550.404a-1(c)(2) of the Proposal.

BNY Mellon Investment Management is a division of BNY Mellon, one of the world's largest financial services groups. With a presence in 35 countries, BNY Mellon looks to connect investors with opportunities across every major asset class. BNY Mellon Investment Management encompasses BNY Mellon's affiliated investment firms and global distribution companies, constituting over $2.3 trillion in AUM (as of September 30, 2021).

BNY Mellon Investment Management follows a multi-boutique investment management model that weds the specialist expertise from its investment firms offering solutions across every major asset class, backed by the strength, stewardship, and global presence of BNY Mellon. Each investment firm has its own unique culture, investment philosophy, and proprietary investment processes, and provides a global perspective. Our seven majority owned investment firms, are as follows (all AUM figures as of September 30, 2021): Alcentra ($41.0B), ARX ($7.0B), Dreyfus Cash Investment Strategies ($342.7B), Insight Investment ($1,100.0B), Mellon ($448.6B), Newton Investment Management ($139.1B), and Walter Scott ($99.9B).

At BNY Mellon Investment Management our Responsible Investment (RI) approach varies across our investment firms, but the effective stewardship of our clients' assets is common to all and core to our own purpose. Many products or solutions offered by BNY Mellon Investment Management examine ESG factors in their investment processes and decision-making to better manage risk and generate sustainable long-term returns. Six of our investment firms--Alcentra, ARX, Insight, Mellon, Newton, and Walter Scott--are signatories of the Principles for Responsible Investment (``PRI'').

As we have noted in a previous comment letter, over the past decades, fiduciaries and investment managers have come to appreciate the materiality that ESG factors can have on investment value. We welcome the Department's clarifications to the Current Rules regarding the use of ESG factors and the exercise of shareholder rights. The acknowledgement by the Department that climate risks and other ESG factors can be and often are material to investment risk and returns will better allow fiduciaries to mitigate risk and enhance returns based on evaluating ESG factors.

Within the last decade, a deep body of research has been produced that demonstrates the material influence of ESG factors on the profitability of an enterprise and the performance of its securities. For example, weak control of environmental activities such as pollution, over-consumption of raw materials or lack of recycling of waste materials readily leads to volatile or lower achieved margins or financial penalties that reduce investor returns. Similarly with social issues: high staff turnover, high strike rates or absenteeism or death or injury rates have all been linked to lower productivity and poor quality control. Regarding governance, we know from years of empirical observation that poorly managed issuers can seriously damage investor returns. To ignore the entire category of information and analysis that comprise ESG factors, therefore, could be deemed an abrogation of a fiduciary's responsibility to consider all material information when assessing the risk and return of any investment opportunity.

The Proposal appropriately balances the materiality that ESG factors can have on investment value with the Department's longstanding principles that a fiduciary's duties of prudence and loyalty require the fiduciary to consider factors that are material to investment value. In particular, a fiduciary should not subordinate the interests of plan participants and beneficiaries to other objectives, nor sacrifice investment return or take on additional investment risk to promote goals unrelated to the plan and its participants and beneficiaries. We specifically believe that the proposed removal of the definition of ``pecuniary factors'' and the revision to the Current Rules providing that a fiduciary's evaluation of an investment or investment course of action should be based on factors that ``are material to investment value'' both clarifies the rule and ensures that the rule reflects the analysis performed by fiduciaries when making investment decisions.

We also support the removal of the special rule prohibiting certain investment alternatives from being considered qualified default investment alternatives (QDIA) because the investment references ESG factors. The QDIA restrictions in the Current Rules add uncertainty and would be difficult to apply. We agree with the Department that there is not a reason to prohibit fiduciaries from prudently selecting a fund that meets the QDIA requirements and includes the consideration of ESG factors.

We support the Department's efforts to reduce the uncertainty in the market caused by the Current Rules and we suggest additional clarification regarding the use of screens. We believe this clarification could further reduce uncertainty that might otherwise prevent fiduciaries from considering ESG factors which are expected to enhance investment value and performance or improve investment portfolio resilience against the potential financial risks.

As noted above, we support the removal of ``pecuniary factors'' and that a fiduciary's evaluation of an investment or investment course of action should be based on factors that ``are material to investment value''. We think that the Department could add additional clarity to the rule or preamble by clarifying that the proposed rule does not per se prohibit a fiduciary from using a screen on investments based in whole or in part on ESG factors.

A common method used by investment managers to incorporate ESG factors into the assessment of investment risks and returns is the use of screens. As described in the Proposal, ``negative screening refers to the exclusion of certain sectors, companies, or practices from a fund or portfolio based on ESG criteria.'' The Proposal's discussion of the benefits that can occur from the use of ESG factors in the assessment of investment risks and returns relies on sources that studied the impact of investment managers using screens based on ESG factors. However, the Current Rules and some past guidance regarding the use of ESG factors could be read to preclude the use of screens based on ESG factors.

We suggest that the Department clarify in the final rule or its preamble that the investment prudence duties and the investment loyalty duties under Sections 2550.404a-1(b) and 2550.404a-1(c), respectively, do not per se prohibit the use of screens. For example, it should be permissible for a plan fiduciary to select investment managers and funds that use screens to the extent that doing so would otherwise be consistent with its duties. It should similarly be permissible for any such investment manager to select an ``investment course of action'' that uses a screen to the extent that the resulting investment strategy would otherwise be consistent with its duties. Such a clarification would provide certainty to fiduciaries seeking to use ESG factors in the assessment of investment risks and returns in accordance with their prudence and loyalty duties. It would further ensure that plan participants realize the full benefits of fiduciaries using ESG factors as described in the Proposal.

We strongly support the Department's efforts to bring clarity to the use of ESG factors and the exercise of shareholder rights by plan fiduciaries. We believe the Proposal and the changes suggested here will promote retirement income security and further retirement savings by allowing fiduciaries to better manage risks and improve investment returns. Sincerely, Hanneke Smits, Chief Executive Officer, BNY Mellon Investment Management. ____ Lazard Asset Management, December 12, 2021. Office of Regulations and Interpretations, Employee Benefits Security Administration, U.S. Department of Labor, Washington, DC.

Dear Madam or Sir: Lazard Asset Management LLC (``LAM'') submits the following comments regarding the above-referenced proposal to amend the Investment Duties regulation under Title I of the Employee Retirement Income Security Act of 1974, as amended (``ERISA''). See Prudence and Loyalty in Selecting Plan Investments and Exercising Shareholder Rights, 29 CFR Part 2550, RIN 1210-AC03 (October 14, 2021), 86 Fed. Reg. 57272 (the ``Proposed Rule'').

LAM is pleased that the Department recognizes that climate change and other ESG factors are often material to the assessment of investment risks and returns. We agree with the Department that the changes proposed not only would clarify the duties of plan fiduciaries when selecting investment options, but also would help individuals build retirement income security and retirement savings. In particular, we believe that the Proposed Rule, if adopted, will provide plans with the freedom to leverage the advances that active asset managers have contributed to ESG analysis and investing in recent years.

LAM is an investment adviser registered with the Securities and Exchange Commission, with more than $239.8 billion of assets under management as of September 30, 2021. We manage assets on a discretionary basis for a large number of global clients, including a variety of U.S. defined benefit plans, defined contribution plans, individual retirement accounts, and variable annuity portfolios.

LAM's investment decisions are based on proprietary fundamental and quantitative research techniques that our professionals have developed over decades. Our firm seeks to manage client portfolios in a way that delivers investment performance, maximizes long-term shareholder value, and limits unwanted risks--including the risks presented by ESG factors.

The Proposed Rule would allow plan fiduciaries to consider a wider variety of factors when evaluating plan investment options under Section 404(a) of ERISA, which sets forth the standards of prudence that an ERISA fiduciary must satisfy when selecting investments for a qualified plan. The Proposed Rule is in response to the rule the Department adopted in 2020, Financial Factors in Selecting Plan Investments, 85 FR 72846 (Nov. 13, 2020) (the ``2020 Rule''), which is interpreted generally to require plan fiduciaries to select investments and investment courses of action based solely on the consideration of ``pecuniary factors.'' The 2020 Rule also contains a prohibition against adding or retaining any investment fund, product, or model portfolio as a qualified default investment alternative (QDIA) if the fund, product, or model portfolio reflects non-pecuniary objectives in its investment objectives or principal strategies.

LAM agrees with the Department's overall assessment of the 2020 Rule expressed in Section 3 of the preamble of the Proposed Rule--specifically, that the 2020 Rule (1) does not properly reflect the scope of fiduciaries' duties under ERISA to act prudently and solely in the interest of participants and beneficiaries when evaluating investments and (2) creates uncertainty surrounding whether a fiduciary under ERISA may consider any ESG and other important factors in making investment decisions. A number of Department bulletins and pronouncements predating the 2020 Rule effectively guided plan fiduciaries that they could consider adding ESG investment options to their plans pursuant to Section 404(a). See e.g., Interpretive Bulletin 2008-01, Interpretative Bulletin Relating to Investing in Economically Targeted Investments, 73 FR 61734 (Oct. 17, 2008); Interpretive Bulletin 2015-01, Interpretive Bulletin Relating to the Fiduciary Standard Under ERISA in Considering Economically Targeted Investments, 80 Fed. Reg. 65135 (Oct. 26, 2015); and Field Assistance Bulletin No. 2018-01 (April 23, 2018). The 2020 Rule changed the guidance and standards set forth in those precedents.

The Proposed Rule would add language in paragraph (b)(2)(ii)(C) of the current regulation to recognize explicitly that ``consideration of the projected return of the portfolio relative to the funding objectives of the plan may often require an evaluation of the economic effects of climate change and other ESG factors on the particular investment or investment course of action.''

This would allow plan fiduciaries to evaluate factors that many other investors already consider material. An analysis of over 16,000 global firms over the period of 2016 to 2020 conducted by the Lazard Climate Center found investors are actively pricing in risk from company emissions profiles. The study found that with all else being equal, changes in emissions profiles can have an impact on a company's market valuation. For example, a hypothetical 10 percent decrease in carbon dioxide emissions is associated with a 0.44 percent price-to-earnings appreciation. In addition, the Swiss Re Institute's April 2021 report The Economics of Climate Change: No Action Not an Option, states that ``[t]he transition towards a low carbon economy . . . has repercussions for asset valuations. It is clear that climate transition risks can have a substantial impact on equity and credit valuations.'' Their analysis concludes that ``under the current trajectory, global GDP could be 11-14 percent less by mid-century than in a world without climate change.''

LAM's research recognizes that there will be economic winners and losers from the low carbon transition, and that economically material factors should not be ignored in investment analysis simply because they are of an environmental, social, or governance nature. The Proposed Rule properly grants fiduciaries the express permission to consider material ESG factors in their investment analysis, which we believe should result in promoting retirement income security and more secure retirement savings.

The Proposed Rule ``confirms that a fiduciary may consider any factor material to the risk-return analysis, including climate change and other ESG factors'' (emphasis added). It goes on to list numerous nonexclusive examples:

(i) Climate change-related factors, such as a corporation's exposure to the real and potential economic effects of climate change, including its exposure to the physical and transitional risks of climate change and the positive or negative effect of Government regulations and policies to mitigate climate change;

(ii) governance factors, such as those involving board composition, executive compensation, and transparency and accountability in corporate decision-making, as well as a corporation's avoidance of criminal liability and compliance with labor, employment, environmental, tax, and other applicable laws and regulations; and

(iii) workforce practices, including the corporation's progress on workforce diversity, inclusion, and other drivers of employee hiring, promotion, and retention; its investment in training to develop its workforce's skill; equal employment opportunity; and labor relations.

We believe that the examples given in the Proposed Rule, while necessarily incomplete, do serve the purpose of providing adequate guidance to plan fiduciaries. We also believe the Department's examples focus fiduciaries on economically material considerations.

At LAM, we have embedded ESG insights into our relevant investment research and portfolio construction functions. We have developed a proprietary ESG integration framework using (among other things) materiality mapping, which is being implemented across relevant investment platforms. As an active asset manager that has incorporated ESG considerations into its proprietary research, LAM is able to regularly provide our clients with examples of how such considerations have positively influenced investment outcomes. We have made these investments into our platform because we believe that investors--including plan fiduciaries--need to understand how ESG factors impact the financial productivity, operational risks, and valuations of the companies whose shares and bonds are in their portfolios.

Paragraph (c)(3) of the Proposed Rule amends the ``tie breaker'' standard in the 2020 Rule to allow fiduciaries to use broader discretion when comparing investment options. Under the proposal, a fiduciary evaluating two suitable investment options may select the ESG option over the non-ESG option where both would ``equally serve the financial interests of the plan over the appropriate time horizon,'' instead of limiting the use of the ``tie-breaker'' standard to situations in which both are ``economically indistinguishable.'' LAM agrees with this more comprehensive approach as it recognizes that fiduciaries should have the freedom to choose an investment for the purposes of diversification or to hedge against broad categories of risk, both of which can lead to better financial performance for a portfolio.

The Proposed Rule rescinds paragraph (d)(2)(ii) of the current regulation which prevents an investment option to serve as a qualified default investment alternative (QDIA) if it includes the use of non-pecuniary factors in its investment objectives even if the option is prudent from a risk and return perspective. LAM believes the 2020 Rule in this regard is contrary to goals of ERISA as it could potentially exclude financially prudent investment options on the simple basis that they consider economically material ESG factors. As previously stated, LAM believes that consideration of economically material factors should not be prohibited on the sole basis that they are of an environmental, social, or governance nature.

We believe that plan fiduciaries should include assessments of material ESG issues when evaluating retirement plan investments. The risks identified by an ESG-integrated assessment are often ultimately detrimental, and the opportunities identified can be quite additive, to the financial performance and value of assets in an investment portfolio. Importantly, the Proposed Rule greatly reduces the current uncertainty surrounding a fiduciary's consideration of material ESG factors. It restores trust in fiduciaries by allowing them to use their professional judgement to evaluate all material factors when selecting investment options for plan participants and beneficiaries.

In light of the foregoing, we recommend that the Department adopt and implement the Proposed Rule as written. We would be happy to provide the Department with additional information concerning our comments. Any requests should please be directed to our General Counsel, Mark Anderson.

Respectfully submitted, Nikita Singhal,

Co-Head Sustainable Investment & ESG. Jennifer Anderson,

Co-Head Sustainable Investment & ESG.

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Mr. SCOTT of Virginia. Mr. Speaker, this is just a small sample of the financial industry's support for the underlying rule. We should not overturn the rule with this resolution.

Mr. Speaker, for these reasons, I oppose H.J. Res. 30, I encourage all Members to do the same, and I yield back the balance of my time.

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Mr. SCOTT of Virginia. Mr. Speaker, on that I demand the yeas and nays.

The yeas and nays were ordered.

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