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IFAC Perspective on Proposed Rule Governing ESG Information in US Pension Plan Investment Decisions

Jul 30, 2020 | English

As increasing numbers of companies worldwide report on ESG factors, investors—and those charged with making capital allocation decisions—should be free to make use of all available, relevant information about companies without penalty or increased risk of legal liability.

A recently proposed rule in the United States addresses the appropriateness of ESG considerations as Financial Factors in Selecting Plan Investments (RIN 1210-AB95).  The proposed rule highlights the increasing focus by asset owners and investors on the relevance of “non-financial” information—measures related to value creation, sustainability or environmental, social, and governance factors (“ESG factors”). 

IFAC continues to speak out on behalf of the global accounting profession on the topic of non-financial reporting and believes that corporate reporting should capture all relevant information about organizations.  Investors and other stakeholders are demanding more and higher-quality information about company performance, risks, opportunities, and long-term prospects than the conventional financial reporting process makes available. 

Recent recommendations by the U.S. Securities and Exchange Commission’s Investor Advisory Committee acknowledge that “ESG is no longer a fringe concept.  It is an integral part of the larger investment ecosystem of our modern, global, interconnected world.”

While the importance of maximizing the financial security of pension plan beneficiaries is clear, the rules governing asset allocation and investment decisions should not create ambiguity that could, for example, discourage fund managers from appropriately considering and disclosing ESG factors as a component of how they analyze company performance, nor in any way “chill prospects” for integrating the value of information that ESG factors can bring into portfolio or investment decisions related to ERISA plans.

IFAC believes that investors and markets benefit when relevant, reliable, and comparable ESG factors are included in corporate reporting.  Further, reporting this information can incentivize companies to improve their focus and organizational decision-making on creating long-term value for investors, resulting in better long-term returns.  This is explored in greater depth in IFAC’s Point of View on Enhancing Corporate Reporting.

As the global voice of the accounting profession, IFAC remains committed to advocating for a comprehensive approach to corporate reporting through its contributions to global consultations and engagements.

About IFAC
The International Federation of Accountants (IFAC) is the global organization for the accountancy profession dedicated to serving the public interest by strengthening the profession and contributing to the development of strong international economies. IFAC is comprised of more than 175 members and associates in more than 130 countries and jurisdictions, representing more than 3 million accountants in public practice, education, government service, industry, and commerce.