Remarks at the Press Conference Announcing New ERISA Guidance On Economically Targeted Investments, New York, NY, October 22, 2015

[as prepared for delivery]

Good morning and welcome. Thanks so much for being here for this important announcement on economically targeted investing.

Lisa, Audrey, Matthew, Bill: thank you for joining us. The fact that leaders from the labor movement, the business community, philanthropy, academia and Wall Street are here with us speaks volumes about the breadth of support for the common-sense step we're taking today.

This announcement is the product of sustained, robust outreach to a wide range of stakeholders. This issue first came to my attention in June of last year, when the White House convened a conference on ETI issues. As I look around this room, I see a lot of the same faces that were in attendance that day. I'm grateful for the counsel and input they've provided me and the Labor Department over the last 16 months.

Economically Targeted Investing, or ETI, is known by a number of terms — "environmental, social and governance", or ESG, investing; sustainable and responsible investing, impact investing. Although the multitude of labels can be confusing at times, the goal is very clear. The goal refers to the idea of investing first for financial return but for social returns as well.

I often talk in other contexts about the need for us to reject false choices. We don't have to choose between shareholder returns on the one hand and, for example, safe workplaces or fair pay or equal rights on the other hand. There's a growing national conversation, embodied by many people in this room that rejects the zero-sum game in favor of a win-win mindset, embracing the idea that these goals are complementary and not at cross-purposes... that worker safety and good wages actually improve the bottom line.

The issue we're talking about today is a first cousin of that idea. The question is this: Can an ERISA plan invest in projects or companies that serve the common good, while still keeping at the forefront the fiduciary principle of investing prudently and for the exclusive benefit of retirees and workers?

I believe we can. Complying with one's fiduciary obligation is essential and necessary, but it doesn't automatically exclude taking into consideration or making progress on other important, socially-responsible goals. These goals include, but are not limited to, infrastructure development and green energy, among others. And perhaps no class of Americans believes we can do this more than the one that controls a growing percentage of national wealth: the millennial generation. In so many aspects of their lives, they put their values into action. Plan managers should not be surprised if millennials come to them saying they want their 401k and their IRA to provide them with sound retirement security tomorrow and also to do some good in the world today. The good news is that the market has developed a wide array of analytical tools and products that might fit this need.

In 1994, the Labor Department issued common-sense guidance that memorialized decades of prior pronouncements from Republican and Democratic administrations, by making clear that — all other factors being equal— it's perfectly acceptable for ERISA plan fiduciaries to consider the social impact of their investments. If you could demonstrate that you weren't compromising fiduciary obligations, you could consider the fact that the investment also promotes a public good as a reason to make the investment — not a strike against it.

A lot has changed in the years that followed. Around the world, the ETI market has taken off remarkably as more and more investors recognized the promise of these opportunities. In 2005, the UN doubled down on this idea, putting ETI front and center on a global scale, with the development of new principles for responsible investing. Philanthropy got on board. Big asset managers across the country and around the world made the determination that this was a growth market they could embrace. For many investors and conventional investment firms, ETI investing has become mainstream. Decision-makers acquired new tools leaving them better equipped to evaluate this question of whether a given investment could both benefit plan participants and advance social goals.

So just when this locomotive was pulling out of the station, rumbling down the tracks and gathering greater speed... what did the federal government do? Unfortunately, in 2008 we decided to start pumping the brakes. Seven years ago, in the waning days of the Bush Administration, the Labor Department revisited the question again: can ERISA plans honor their fiduciary obligation and pursue social goals? This time, inexplicably, at just the moment when the marketplace was rapidly expanding and growing in sophistication, the Department of Labor answered effectively: "Well... only under very rare circumstances. "

It was a classic case of violating the "if-it-ain't-broke-don't-fix-it" rule. The department "modified" the 1994 guidance and issued a new interpretation of ERISA that was both counterintuitive and counterproductive. It purported not to amend the principles set forth in the 1994 guidance, but it did assert that impact investing should be rare and suggested that it had to comply with exacting documentation requirements only applicable to those types of investments.

The message of the 2008 bulletin was unmistakable. Even if the "all things being equal test" nominally hadn't changed, in many quarters it was understood to have changed.

I used to play tag as a kid and you'd say, "someone has cooties." The 2008 guidance gave cooties to impact investing.

Whatever the stated goal of the 2008 change, a range of stakeholders have told us that, in practice, it has had a chilling effect on economically targeted investing. We've heard repeatedly that ERISA fiduciaries are gun shy about these investments — not because of their financial merits, but because they're afraid of running afoul of our 2008 guidance.

In the wake of that 2008 guidance, that train has continued to barrel down the tracks, largely leaving behind some $8.4 trillion worth of assets in ERISA-covered defined benefit and defined contribution plans. The marketplace has experienced explosive, exponential growth, but ERISA fiduciaries face artificial barriers from making these investments — not because they aren't sound investments, but, perversely, because they also promote the public good.

For seven years, while we've effectively discouraged and dissuaded ERISA fiduciaries from pursuing these kinds of investments, the business community and the non-ERISA investment communities didn't just stand still — they've charged full steam ahead on that train. They've continued moving forward to expand ETI opportunities.

They've moved forward on investments like green bonds, whose proceeds are directed toward projects tackling climate change, like wind energy, mass transit or waste reduction. They've moved forward, for example, with investments in revenue-generating toll roads that upgrade our crumbling infrastructure. They've moved forward on private equity funds that focus on sustainability-driven investments, like farmland or water management.

Now, some green bonds represent good investments with a high return; others don't. The issue of return should be the yardstick. What we're saying today is: Just because a project has social impact, that should not be a strike against it. Nor should it be a decisive argument for it.

The fact is that we haven't kept pace. There are more investment vehicles available that evaluate both the bottom line and the common good. When you look at the total value of funds incorporating ESG criteria, the trajectory is truly staggering: $202 billion in 2007, then soaring to $4.3 trillion in 2014. But ERISA plans are on the outside looking in at that stratospheric growth.

With that growth has come improved metrics, which were unavailable seven years ago, allowing us to more precisely evaluate the performance of a given investment. Some of the biggest fund managers out there are employing these tools and making decisions about their entire portfolio accordingly.

And what those analytics often tell us, in fact, is that these so-called "collateral" benefits aren't necessarily collateral at all. In fact, the social impact can be intrinsic to the marketplace value of an investment. In other words, ETIs can be the place where doing well also means doing good.

There are plenty of profit-seeking investors in the ETI space, both domestically and internationally, but ERISA pension plans are conspicuously absent. And there's one principal reason for that: the 2008 revision represented a thumb on the scale against this kind of investing. It created a bias, diverting capital away from promising opportunities for no other reason than that they carried the ETI label.

The ETI train has roared out of the station. Until now, however, ERISA pension plans weren't able to climb aboard, in large measure because of the 2008 guidance from the last administration that left them standing at the station.

Today, we return to the sound principles, and reinstate the language, of 1994. We remove the thumb from the scale, restoring balance and leaving decisions to the marketplace. We assert that there should not be an automatic presumption against an investment that also promotes the public good.

Today, the Labor Department is issuing this new guidance regarding Economically Targeted Investments made by retirement plans covered by ERISA. This guidance confirms the department's longstanding view, as laid out in the 1994 interpretation, that fiduciaries may take social impact into account as "tie-breakers" when investments are otherwise equal.

In doing so, we remove confusion and restore clarity. The 2008 bulletin muddied the waters, creating uncertainty for ERISA fiduciaries as to where the bar was set and how they could be sure they had cleared it. A return to the 1994 guidance is a return to a well-defined, widely-understood standard that had guided their decision-making for many years.

But let me very clear about one thing: this is not a thumb on the other side of the scale. What we're doing today in no way compromises the financial health of retirement plans or their participants. For the four-plus decades since the passage of ERISA, that has been the paramount consideration, and it cannot be trumped. Fiduciary obligation is the law of the land, and nothing in today's announcement undermines that. Indeed, today's announcement reaffirms that ERISA fiduciaries may not accept lower returns or incur greater risks in the name of collateral benefits.

Today, we also re-align our policy with marketplace reality. We finally catch up to the breathtaking change we've seen in this space in recent years. By going back to guidance that worked by restoring the 1994 guidance, we bring ERISA investors together with Economically Targeted Investment opportunities — allowing the capital to meet the opportunity, allowing the money to meet the marketplace.

Thanks so much. And with that, let me turn over the floor to Lisa Woll, CEO of U.S. SIF: The Forum for Sustainable and Responsible Investment.