In 2022, the Department of Labor (DOL) issued a final rule allowing plan fiduciaries to consider ESG factors in ERISA retirement plan investments. That rule served as a bulwark against many anti-ESG investing cases alleging that considering ESG factors violated fiduciary duty. Now the DOL is advancing a new rulemaking that will undo the 2022 rule and adopt a more hostile stance to ESG. The National Association of Plan Advisors writes of the new rule:
“Titled “Prudence and Loyalty in Selecting Plan Investments and Exercising Shareholder Rights,” the draft guidance was submitted by the DOL’s Employee Benefits Security Administration (EBSA) on June 30 to the White House’s Office of Information and Regulatory Affairs (OIRA), signaling that the guidance may be released in the coming weeks…
EBSA’s pending guidance would revise the Biden-era regulations issued in December 2022 so that “plan fiduciaries select investments and exercise shareholder rights based only on financial considerations relevant to the risk-adjusted economic value of a particular investment, and not to advance social causes.”
Presently, the new rule has been advanced to the White House for review. After meeting approval from the administration, the rule will still need to undergo the formal rulemaking process. This move isn’t much of a surprise. The administration previously targeted the 2022 rule, declining to defend it in an ongoing legal challenge brought by red-state attorneys general. Without the DOL rule to fall back on, litigation surrounding ESG consideration may become more contested. However, the rule specifically bars investment decisions from “advancing social causes.” Fiduciaries that can tie ESG considerations to enhanced financial returns and risk management may remain on solid footing.
Our members can learn more about climate in the financial services sector here.
Interested in a membership with access to the complete range of benefits and resources? Sign up now and take advantage of our no-risk “100-Day Promise” – during the first 100 days as an activated member, you may cancel for any reason and receive a full refund. But it will probably pay for itself before then. Members also save hours of research and reading time each week by using our filtered and curated library of ESG/sustainability resources covering over 100 sustainability subject areas – updated daily with practical and credible information.
Practical Guidance for Companies, Curated for Clarity.
