• In 2023, the U.S. Department of Labor under the Biden Administration issued a new rule that explicitly allows private retirement plans and pensions to consider certain risk factors, like those related to climate change, workers’ rights, and corporate governance when making and managing long-term investments.
  • The SEC finalized a rule on climate risks disclosure and one of two proposed rules to avoid greenwashing and other misleading practices in investment products.
  • There are several bills proposed at the federal level, including the Reward Work Act and the Accountable Capitalism Act, which aim to shift public companies towards long-term value and away from short-term gains.

Have the federal or state governments taken any steps to make investing more transparent and protect retirement security?

In 2023, the U.S. Department of Labor under the Biden Administration created a new investor protection that explicitly allows private retirement plans and pensions to consider certain risk factors, like those related to climate change, workers’ rights, and corporate governance when making and managing long-term investments. The rule should give retirement savers more investment choices, which allows them to better align their investments with their values or preferences.

Other regulatory agencies and departments are also looking into increasing transparency and accountability to support investors and better protect retirement security from long-term financial risks.

California passed a bill in September 2023 requiring large companies that do business in California to report on their greenhouse gas emissions, which was signed into law in October 2023. The new law will require companies with over $1 billion in annual revenues to measure and disclose emissions from both from their own operations and from operations along their supply chain, which represent the bulk of companies’ carbon exposure. Another law the state passed at the same time will require companies to report on other climate-related financial risks.

What can the SEC do to protect investments from risks?

The Securities and Exchange Commission (SEC), an independent federal regulator that has a mandate to protect investors, finalized in March a new rule that would require public companies to disclose information about the financial risks of climate change. Its public agenda also previews its intention to propose a rule requiring public companies to disclose information about their workforce management practices. Although not currently on its agenda, there are calls for the SEC to also require public companies to disclose their political spending. All of these disclosures would serve to give investors – including workers’ retirement funds – more information about investment risks and opportunities and equip them to make better investment decisions. 

In September, the SEC also finalized one of two rules it proposed  that aim to better regulate ESG-branded investment products to stop financial institutions from using greenwashing tactics that mislead investors. 

Under the now-finalized amended “Names Rule,” funds that market themselves with a thematic investment focus in their name will need to invest at least 80% of the value of their assets in investments consistent with that focus. They will need to perform quarterly reviews to ensure assets remain in compliance with that focus and also disclose more information to investors about their use of terminology and how it is consistent with common use. 

In other words, a fund that markets itself as “ESG,” “sustainable,” “net zero” or otherwise in its name will need to show that 80% of its assets are actually being invested consistently with that focus and that the funds’ definition of “ESG” or whatever term is used matches common industry definitions and regular understanding. 

The other rule the SEC has proposed but not yet finalized would increase disclosures of ESG branded funds, so that investors can have the information they need to determine if funds’ ESG strategies and goals align with their investment needs and goals.

There will be some lag time before funds need to comply with the new naming rule, with large fund groups having 24 months to comply and smaller groups having 30 months. 

Some federal lawmakers have introduced bills that would undermine these regulations that would equip investors with more information to make better investment decisions.

What other information would help investors make responsible investing decisions?

Investors and pension fund managers currently don’t have access to a lot of information about how companies are managing significant risks, such as those related to environmental, social, and governance issues, or about how their business is impacting the environment and communities.

For example, there is little information about how companies treat their workers, how they engage in state or federal lobbying, or how they manage climate risks (such as the increase in extreme weather events), or what products marketed as “sustainable” to investors are actually invested in.

Federal regulatory agencies are trying to fill some of these gaps by requiring that every public company provide basic information about some of these issues, and by establishing parameters for ESG-branded investment products. 

What can Congress do to keep companies’ risky actions in check?

There are two bills that would change the rules and incentives for public companies. 

  • The Reward Work Act: This bill would end open-market stock buybacks, which artificially increase share price and wealthy CEOs’ paychecks. Every dollar spent on stock buybacks is a dollar not spent on raising worker wages, or on research and development and other long-term investments needed for sustainable economic growth. The bill would also require that public companies let a third of their board be chosen by their workers.
  • The Accountable Capitalism Act: This bill would reorient corporate decision-making toward long-term, sustainable value creation by fundamentally changing the rules and incentives of large corporations. For example, company directors — 40% of whom would be elected by its employees — would be explicitly required to consider the interests of employees, customers, shareholders, and the communities in which the company operates.
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