DOL Proposal Seeks to Remove Barriers to Considering ESG in Retirement Plans

The U.S. Department of Labor announced a proposed rule that would remove barriers to retirement plan fiduciaries’ ability to consider climate change and other environmental, social and governance factors when they select investments and exercise shareholder rights. The proposed rule, “Prudence and Loyalty in Selecting Plan Investments and Exercising Shareholder Rights,” follows Executive Order 14030, signed by President Biden on May 20, 2021. The proposal would reverse a Trump administration rule that made it more difficult for 401(k) plans to offer investments based on ESG factors. “The proposed rule announced today will bolster the resilience of workers’ retirement savings and pensions by removing the artificial impediments – and chilling effect on environmental, social and governance investments – caused by the prior administration’s rules,” said Acting Assistant Secretary for the Employee Benefits Security Administration Ali Khawar. “A principal idea underlying the proposal is that climate change and other ESG factors can be financially material and when they are, considering them will inevitably lead to better long-term risk-adjusted returns, protecting the retirement savings of America’s workers.” The comment period will run for 60 days after publication in the Federal Register and will include instructions on submitting comments through www.regulations.gov.