Biden Orders DOL to End or Revise Rules Limiting ESG Investments

President Joe Biden has issued an executive order that among other things directs the secretary of labor "to consider publishing by Sept. 2021" proposed rules to suspend, revise or rescind agency rules that limited investments focused on environmental, social or governance (ESG) factors in retirement plan accounts and limited plan fiduciaries from voting in favor of climate-related shareholder proposals.

Those rules were approved by the Trump administration last October after an unusually short comment period that attracted opposition from many financial firms, including BlackRock, Fidelity Investments, State Street Global Advisors and Vanguard, as well as sustainability advocates like the Grantham Foundation for the Protection of the Environment and the US SIF: Forum for Responsible and Sustainable Investment.

The Biden Labor Department abandoned the Trump-era rules in March, announcing that "until the publication of further guidance, the department will not enforce either final rule or otherwise pursue enforcement actions against any plan fiduciary based on a failure to comply with those final rules."

The executive order requests that the labor secretary submit within 180 days a report to the director of the National Economic Council and the White House national climate advisor that identifies actions taken by the agency to protect life savings and pensions of U.S. workers and families from climate-related financial risk. It asks the same of the Federal Retirement Thrift Investment Board, which administers a 401(k)-like savings plan for federal employees.

In the meantime, a bill was introduced in the House the same day Biden issued the order that would allow retirement plan fiduciaries to consider ESG factors for investments.

A Focus on the Financial Risks of Climate Change

Biden's order focuses on the physical and transition risks of climate change to financial assets, companies, communities and workers and "the failure of financial institutions to appropriately and adequately account for and measure" those risks, which it says threatens the competitiveness of U.S. companies and markets as well as the savings of workers and families.

"The Federal Government should lead by example by appropriately prioritizing Federal investments and conducting prudent fiscal management," the order says.

To that end, the executive order requests that the assistant to the president for economic policy, the director of the National Economic Council and the national climate advisor, in coordination with the treasury secretary and director of the Office of Management and Budget develop within 120 days a "comprehensive, government-wide strategy to assess, mitigate and disclose climate-related financial risks to federal government programs, assets and liabilities along with the financing needs to achieve net-zero greenhouse gas emissions by 2050 or earlier. The role that private and public investments can play in that effort is also requested.

In addition, the order directs the treasury secretary in concert with members of the Financial Stability Oversight Council (FSOC) to assess the risks that climate change poses to the stability of the U.S. financial system and the U.S. It requests them to file a report within 180 days that includes efforts of FSOC member agencies to integrate consideration of climate-related financial risk in their policies and programs.

FSOC members include the Federal Reserve chairman, the comptroller of the currency and the director of the Consumer Financial Protection Bureau.

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