What You Need to Know
- This is just one of several directives included in a wide-ranging executive order addressing climate change.
- DOL is asked to consider suspending, revising or rescinding rules that limited ESG investments in retirement plans.
- The White House wants Treasury and other agencies to address the physical and transition risks of climate change.
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.