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It seems that each month brings more news of momentum in the Socially Responsible Investment (SRI) realm!
On October 27th the US Department of Labor issued an “Interpretive Bulletin” which could open the door for substantial increases in the use of Socially Responsible Investments in pensions. This is significant because these plans, governed by the Employee Benefits Security Administration (ERISA), account for over $8 trillion in investment assets!
So you are probably wondering what was the issue with SRI in pensions. ERISA oversees pension plans and holds fiduciaries accountable to their responsibilities. These fiduciaries must make sure that plan participants have investment options that provide an opportunity to obtain competitive returns. Language used in the past had the unintended effect of causing these fiduciaries to exclude SRI options for fear that they might be considered inferior in some way to other investments. This new interpretation clarifies that this was not the original intention and acknowledges that the numbers show SRI performance is in-line with the broader market. The Interpretive Bulletin brings ERISA guidance in step with today’s realities by noting that “fiduciaries need not treat commercially reasonable investments as inherently suspect or in need of special scrutiny merely because they take into consideration environmental, social, or other such factors.”
This reversal by the Labor Department represents another example of how SRI returns misconceptions are diminishing. If you still have doubts about SRI returns competing with the broader market, take a look our recent blog (Misconception #1: Poor Returns) which includes an extensive Morgan Stanley report addressing the topic.
One organization that played a major role in pressing the DOL to overturn the inaccurate portrayal of SRI in its guidelines for fiduciaries is the Forum for Sustainable and Responsible Investment (US\SIF). Here press release on the topic provides a nice summary. By the way, Cascade Financial Strategies is proud to be the only Central Oregon member of the US\SIF at the time of this post!
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Investment Advice is offered through Cascade Financial Strategies, a registered investment advisor licensed in Bend, Oregon, California and Idaho (We also operate in other states under the "de minimis" exemption, meaning having five or fewer clients within that state).
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