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ESG Perspective published on July 9, 2020

ERISA and ESG: ESG, Sustainability Are Integral to Research

On June 23, 2020, the U.S. Department of Labor (DOL) released a proposed rule regarding fiduciary duties when selecting investment options for retirement plans under the Employee Retirement Income Security Act (ERISA) of 1974, as amended. Specifically, the proposed rule addresses fiduciary duties regarding environmental, social and governance (ESG) strategies.

In summary, the DOL’s proposed rule reminds plan fiduciaries to “select investments and investment courses of action based solely on financial considerations relevant to the risk-adjusted economic value of an investment or investment course of action.”1 The DOL states, “This proposed regulation is designed in part to make clear that ERISA plan fiduciaries may not invest in ESG vehicles when they understand an underlying investment strategy of the vehicle is to subordinate return or increase risk for the purpose of non-pecuniary (non-financial) objectives.”

At Breckinridge, we recognize ESG analysis as a means of discerning long-term value. While our analysis of an issuer’s creditworthiness begins with fundamental bottom-up research, we believe evaluating ESG information and trends provides a broader, more forward-looking assessment of potential risks that may not be reflected in the market. Therefore, we believe bond issuers scoring well in our ESG research process are better prepared to meet future challenges and to take advantage of new opportunities.

Our belief is that a thoughtful and forward-looking assessment of risk would be incomplete without the inclusion of material ESG factors. Proprietary, quantitatively based, sector specific ESG frameworks are part of our investment approach. In addition, analysts consider internal and external qualitative research, enhanced by our engagement efforts. Analysts assign sustainability ratings to bond issuers that are important factors in security selection and portfolio positioning.

Following the release of the DOL’s proposal, several investment industry organizations released statements asserting, once again, their view on the essential value of ESG analysis in security research. In a letter published on June 29, 2020, in The Wall Street Journal, Fiona Reynolds, chief executive officer of Principles for Responsible Investment2 observed, “ESG isn’t an asset class, but rather prudent risk management.” She also noted, that in the proposed rule, “the DOL acknowledges explicitly that ESG factors can create business risks and opportunities, and evidence is incontrovertible that climate change will have a material impact on our economy and on asset prices.”


[1] “Notice of Proposed Rulemaking on Financial Factors in Selecting Plan Investments Amending ‘Investment duties’ Regulation at 29 CFR 2550.404a-1,” June 23, 2020.

[2] The PRI is the world's leading proponent of responsible investment. By working to understand the investment implications of ESG factors, the PRI supports signatories in the incorporation of these factors. Breckinridge is a PRI signatory.

DISCLAIMER: The opinions and views expressed are those of Breckinridge Capital Advisors, Inc. They are current as of the date(s) indicated but are subject to change without notice. Any estimates, targets, and projections are based on Breckinridge research, analysis and assumptions. No assurances can be made that any such estimate, target or projection will be accurate; actual results may differ substantially.

Nothing contained herein should be construed or relied upon as financial, legal or tax advice. All investments involve risks, including the loss of principal. Investors should consult with their financial professional before making any investment decisions.

While Breckinridge believes the assessment of ESG criteria can improve overall credit risk analysis, there is no guarantee that integrating ESG analysis will provide improved risk-adjusted returns over any specific time period.

Some information has been taken directly from unaffiliated third-party sources. Breckinridge believes such information is reliable but does not guarantee its accuracy or completeness.

Any specific securities mentioned are for illustrative and example only. They do not necessarily represent actual investments in any client portfolio.

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