Pension funds contribution to investible society - new rules?

       I want to thank the Neanderthals at the Department of Labor (DOL) who recently proposed a new rule that pensions funds can only invest with one view – financial returns – and cannot even consider the benefits of an investment to the broader stakeholder society.  Gratifying to know that over 90% of the commentators of the proposed rule were against it, including leadership firms like BlackRock.  I find it so amazing that the administration can be on the wrong side of history as Environmental, Social, and Governance (ESG) concerns become more widely accepted concerns in the investment process.

     At Calvert we helped write the old rules, which basically just allowed these factors of ESG to be considered when making investment decisions while not compromising returns.  Well, that was 20 years ago and It’s time to make new history, which is why I am thanking DOL for prompting us to address this issue of how our major investment pools are supporting a fair and just society and investible society.

     I was on a zoom call last week with three people, one of whom was acting chair of the SEC and another a former Comptroller of the Currency (chief bank regulator) discussing how new laws under the Biden administration might update this broader conversation of the responsibilities of asset pools to the greater society.  At Calvert, in the 1980s, we set aside 1% of our assets to be invested at below market returns to further issues of social justice.  We funneled monies to Calvert Impact Capital (a non-profit of which I was founding chair) which then made loans to CDFI community lenders.  Although the returns were modest, we never lost money on this 1% carve-out of the portfolio.  In fact, we got many requests from shareholders who wanted to know how to make these kinds of investments directly with their money.  Calvert Impact Capital today has about $40m from Calvert Funds and over $500m from the broader public – none of whom have lost money while deploying funds into needy communities.

       My own view today is that asset pools should be allowed to invest up to 2% of their monies at below market rates to further a just and investible society.  I use the example of people in the fishing business who kept investing in more boats but no one was setting aside a few dollars to make sure our fisheries were kept viable, and now the whole industry is faced with a dwindling fate.  While I prefer a holistic rather than a mechanical approach to asset management, using the 2% rule for this generation seems apt.  My proposal at the time was to be permissive, not required, but now it seems the winds of Congress may lead to an expanded CRA (Community Reinvestment Act) type requirement that would go beyond banks.  So, again, thank you to the backward commentary of the DOL officials for prompting new life to this broader agenda of asking our asset managers to include in their mission a recognition that their largesse depends in part on a vibrant society including the traditionally underserved.

   Attached (or scroll down) is an article I wrote for Pensions & Investments newsletter on arguing for this 2% allocation among sovereign wealth funds.

 Thank you.