Environmentally friendly and socially responsible investment in and by occupational pension funds in the USA and in the EU
| Author | David Pratt,Yves Stevens,Lauren Daniels |
| Date | 01 September 2021 |
| Published date | 01 September 2021 |
| DOI | 10.1177/13882627211026930 |
| Subject Matter | Articles |
Environmentally friendly and
socially responsible
investment in and by
occupational pension funds in
the USA and in the EU
Lauren Daniels
Lawyer Antwerp Bar, Antwerp, Belgium
Yves Stevens
Institute of Social Law, Leuven, Belgium
David Pratt
Albany Law School, NY, USA
Abstract
Worldwide pension funds, in their capacity as large institutional investors, are under increasing pressure
to take social and environmental considerations into account in their investment decision-making
process. The concepts Socially Responsible Investment (SRI) and Environmental Social G overnance
(ESG) are indeed ubiquitous in the current investment and pension community. This article aims to
provide some insight into the conceptual relationship between SRI and ESG and its legal implications for
the investment behaviour of private pension funds in the USA and the EU. Hence, the first part of the
article gives some background to the distinct concepts of SRI and ESG. This leads to the finding that SRI
goes one step further than ESG by prioritising moral or ethical considerations that may not be material to
an investment’s financial performance, whereas ESG functions as a guideline to enhance financial per-
formance. The second part analyses the legal possibilities and constraints for responsible investment in
American occupational pensions and the third part does the same for European occupational pensions.
The article concludes witha summary and comparativeoverview of the American and European lessons.
Keywords
ESG, SRI, pensions, sustainable investments, responsible investments, environmental social
governance, socially responsible investment, ERISA
Corresponding author:
Lauren Daniels, Lawyer Antwerp Bar, Posthofbrug 12, 2600 Antwerp, Belgium.
E-mail: lauren.daniels@hotmail.be
For the Special Issue ‘‘Sustainable Pensions through Sustainable Investments?’’
European Journal of Social Security
ªThe Author(s) 2021
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DOI: 10.1177/13882627211026930
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2021, Vol. 23(3) 247–263
Article
Introduction
Financial assets can contribute to address climate change and social problems, with COVID-19 and
the Black Lives Matter movement being recent examples, if these assets are invested in envir-
onmentally friendly and socially responsible companies.
This social conscience has come a long way and has grown significantly over the last couple of
decades.
In 2006, sustainable investing received a global platform for the very first time. In particular,
sustainable investing got on the worldwide agenda when the United Nations launched the Princi-
ples for Responsible Investment (UNPRI) in that year. This set of six voluntary investment
principles reads as follows:
1. We will incorporate ESG issues into investment analysis and decision-making processes;
2. We will be active owners and incorporate ESG issues into our ownership policies and
practices;
3. We will seek appropriate disclosure on ESG issues by the entities in which we invest;
4. We will promote acceptance and implementation of the Principles within the investment
industry;
5. We will work together to enhance our effectiveness in implementing the Principles;
6. We will each report on our activities and progress towards implementing the Principles.
Despite these global principles, private pension funds in the United States of America and in the
European Union may not always have the same legal opportunities to take sustainability into
account. Hence, this article aims first to provide some insight into the conceptual relationship
between Socially Responsible Investment (SRI) and Environmental Social Governance (ESG) by
defining the distinct concepts and comparing their respective scope (section 1). The article con-
tinues with a comparative analysis of the legal possibilities and constraints for SRI and/or ESG
investment by American private pension funds (section 2) and by European private pension funds
(section 3).
1.The concepts of ‘SRI’ and ‘ESG’
Even though the term ESG has become a buzzword in the investment community in recent
times, there still appears to be some terminological confusion among investors. The concept
of ESG is often wrongly interchanged with that of SRI and other labels like ethical investing,
economically targeted investing, green investing, sustainable or responsible investing and
impact investing keep circulating (Feuer, 2019). The financial sector thus has seemed unable,
so far, to develop a uniform definition of what SRI and ESG constitute precisely (Hylton,
1992: 2). Professor Alexia Autenne (2020) refers to a ‘definitional challenge’ for the years to
come, relating to the further clarification of the concepts surrounding sustainable finance.
This is an alarming finding, given that European regulations (e.g. IORP II) use the term ESG
while no clear definition exists.
However, with a view to ensuring a good understanding of the following parts of this article, we
will first explain how, in our opinion, the concepts of SRI and ESG are related to each other.
Socially Responsible Investing (SRI) traditionally involves investing on ethical grounds to
avoid social injury, rather than investing on financial grounds to maximise returns. In other words,
SRI requires financiers to behave as ethical investors to achieve particular non-economic
248 European Journal of Social Security 23(3)
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