What You Need to Know
- One rule would have had the effect of limiting ESG investments in 401(k) plans.
- The other would limit ESG considerations in fiduciary proxy votes.
- The DOL intends to reach out stakeholders to craft rules that recognize the importance of ESG integration.
The Department of Labor is abandoning two rules adopted under the Trump administration that would have made it more difficult for retirement plans to consider environmental, social and governance (ESG) factors in their investment options and in their proxy votes.
“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,” it said in a statement.
“These rules have created a perception that fiduciaries are at risk if they include any environmental, social and governance factors in the financial evaluation of plan investments, and that they may need to have special justifications for even ordinary exercises of shareholder rights,” said Ali Khawar, principal deputy assistant secretary for the Employee Benefits Security Administration (EBSA), in a statement.
The EBSA enforces the Employee Retirement Income Security Act of 1974 (ERISA) that governs defined contribution and defined benefit plans.
Khawar said the DOL intends to reach out to stakeholders “to determine how to craft rules that better recognize the important role that environmental, social and governance integration” in the evaluation and plan investments while fiduciaries uphold fundamental fiduciary obligations.
The DOL decision follows an executive order that President Joe Biden issued on his first day in office directing federal agencies to review existing regulations issued or adopted during the Trump administration “that are or may be inconsistent with, or present obstacles to, the policies” the new president set forth ”to promote and protect public health and the environment.”