Boyden Gray & Associates partner Jonathan Berry, formerly head of rulemaking at the United States Department of Labor, filed a letter commenting on the DOL’s proposed Employee Retirement Income Security Act (ERISA) regulation on December 13, 2021. In the letter, Berry decries the rule’s privileging of so-called “Environmental, Social, Governance (ESG)” factors as unlawful and undermining the retirement security of millions of Americans. He writes,

The new “thumb on the scale” in favor of ESG investing is transparent from almost every aspect of the proposal . . . . The goal . . . is to confuse or convince fiduciaries into believing they now have a duty to consider ESG factors at almost every turn.

Berry argues that the new proposal would pressure fiduciaries to advance the current Administration’s policy preferences, such as those on climate, by hiding behind the language of risk. But to the extent that there is climate-related risk to pension security, it is not the sort of risk fiduciaries are supposed to address. He writes:

[T]hese risks fall far outside the normal window informing investment decisions and are subject to so many contingencies that their potentially mandatory inclusion in risk assessment will serve only to confuse. Climate change is a long-term risk and there is no consensus on what its ultimate effects will be 50, 100, 200, or 500 years from now. On the proposal’s logic, other speculative long-term risks should also be included: risks of a massive asteroid impact, destruction of the electrical grid by a solar flare, a communist revolution in the United States, dramatic population decline, a “technological singularity,” or even perhaps the Second Coming should get the same billing as climate change…

Further, he argues, “transition risk” from future climate-policy change is not a justification for altering fiduciaries’ duties to workers and retirees. Berry writes,

While the potential for stranded assets created by rapidly changing climate policy is absolutely real, it is unclear what distinguishes this hypothetical climate policy change from all the millions of other sorts of hypothetical policy changes that could affect asset value, such as reductions in the subsidies that inflate the value of investments in renewable energy, or policies to curtail investment in China because of its “mass surveillance, internment, forced labor, torture, sexual violence, sterilization, political indoctrination, and other severe human rights violations of over one million Uyghurs.” Instead, it seems that the purpose of disclosing “transition risk” is to force companies to self-identify so that they can be better targeted for transition—by asset managers and lenders.

Courts rarely allow agencies to find “elephants in mouseholes,” like the power to regulate significant economic and political matters through the guise of ERISA fiduciary obligations. Berry writes,

[T]he proposal violates the “major questions doctrine.” . . . There is no clear statutory indication that Congress intended the Department to have the power to make decisions of vast economic and political significance in the realm of climate. When an agency “claims to discover in a long-extant statute an unheralded power to regulate a significant portion of the American economy, [courts] typically greet its announcement with a measure of skepticism.”. . . . The proposal should be withdrawn because otherwise it is likely that a court will find that the proposal lacks a basis in statutory authority.

The full letter is available here.