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DOL Rules on ESG Investments Land at OMB

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What You Need to Know

  • Labor’s plan complies with an executive order issued by President Joe Biden on May 20.
  • ESG rule is an important priority for the administration, said attorney Gerstein.
  • Labor's plan seeks to either suspend, revise or rescind agency rules limiting ESG investments in retirement accounts.

The Labor Department has sent its proposed rules related to environmental, social or governance (ESG) factors in retirement plan accounts to the Office of Management and Budget for review.

Labor’s plan complies with an executive order issued by President Joe Biden in May that directs the secretary of labor “to consider publishing by Sept. 2021” proposed rules related to ESG investments in retirement accounts.

The plan by Labor’s Employee Benefits Security Administration seeks to either 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.

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.”

OMB reviews typically take 90 days. Once OMB approves the plan, Labor will issue it for public comment.

“This is an important priority for the administration,” attorney George Michael Gerstein with Stradley Ronon in Washington told ThinkAdvisor Monday in an email. So timing for release of EBSA’s plan “can be unpredictable.”

Gerstein said that he’s expecting Labor’s rules to provide “greater clarity on the need to consider ESG factors that are material to investment performance as a matter of prudence.”