On Tuesday, the U.S. Department of Labor published a final regulation aimed at easing the concerns of retirement plan fiduciaries as they review, select and maintain ESG-focused investments within employer sponsored retirement plans.
According to a DOL statement, the purpose of the final regulation is to better allow plan fiduciaries to consider climate change and other environmental, social and governance factors when they select retirement investments and exercise shareholder rights, such as proxy voting.
In the statement, Secretary of Labor Marty Walsh says the final regulation has been developed through extensive consultations and feedback from a wide range of stakeholders. He says the public and industry feedback received by the DOL allowed it to concluded that two related rules issued in 2020 during the prior administration "unnecessarily restrained" plan fiduciaries' ability to weigh such ESG factors when choosing investments — even when those factors would benefit plan participants financially.
The rule is formally titled "Prudence and Loyalty in Selecting Plan Investments and Exercising Shareholder Rights." In the DOL statement, Lisa Gomez, the recently confirmed head of the Employee Benefits Security Administration, says the rule will end the chilling effect created by the prior administration on considering ESG factors in retirement plan investments.
"Climate change and other environmental, social and governance factors can be useful for plan investors as they make decisions about how to best grow and protect the retirement savings of America's workers," she says.
The rule will be effective 60 days after its publication in the Federal Register. Certain proxy voting provisions of the rule, however, come with delayed applicability to allow fiduciaries and investment managers additional time to prepare.
Tuesday's publication of the final regulation comes at a time when ESG investing is both growing in global popularity and becoming more of a political issue for some U.S. conservatives. Back in August, for example, Gov. Ron DeSantis of Florida moved to ban state pension funds from screening for ESG risks, while Texas banned BlackRock Inc., UBS Group AG and eight other finance firms from working with the state after finding them to be hostile to the energy industry.
In a statement sent to ThinkAdvisor in the wake of the rule's publication, As You Sow CEO Andrew Behar celebrated the development, noting that his firm is dedicated to helping investors understand their portfolios' exposure to key ESG risks and issues.
Behar says the new rule appropriately codifies ESG as a framework for assessing risk — not a means of injecting politics in investment practices.
