Yesterday, the U.S. Department of Labor announced new guidance under ERISA for private pension funds that will enable them to consider social impact in addition to financial return when making investments, which could dramatically increase the amount of capital available for socially responsible businesses and funds. The US National Advisory Board on Impact Investing has released a fact sheet that outlines the changes.
The guidance announced yesterday repeals guidance released in 2008, when the Department of Labor said that pension plan managers could not make investment decisions based on any factor outside of the economic interest of the plan. The 2008 guidance made pension managers wary of considering anything but financial return in their investment decisions, and it has kept a significant amount of assets out of play for socially responsible investments.
The new guidance won’t change behavior right away, but it’s a great example of government removing barriers to capital flowing toward responsible business, and we hope that it provides one more avenue for the private sector to mobilize capital for social good.