Department of Labor Proposes Rule Affecting ESG Plan Investments

On June 23, 2020, the U.S. Department of Labor (DOL) proposed a rule intended to clarify ERISA plan fiduciaries’ responsibilities with respect to environmental, social and governance (ESG) investing. The proposal is designed in part to make clear that ERISA plan fiduciaries may not invest in ESG vehicles when they understand an underlying investment strategy of the vehicle is to subordinate return or increase risk for the purpose of non-financial objectives.

The proposal would, among other things, codify DOL’s longstanding position that ERISA requires plan fiduciaries to select investments and investment courses of action based only on pecuniary factors. The proposal acknowledges that ESG factors can be pecuniary factors, but only if they present economic risks or opportunities that qualified investment professionals would treat as material economic considerations under generally accepted investment theories.

The proposal includes a 30-day comment period that begins after the proposal is published in the Federal Register.

Proposed Rule: https://www.dol.gov/sites/dolgov/files/ebsa/temporary-postings/financial-factors-in-selecting-plan-investments-proposed-rule.pdf

DOL News Release: https://www.dol.gov/newsroom/releases/ebsa/ebsa20200623-0

DOL Fact Sheet: https://www.dol.gov/agencies/ebsa/about-ebsa/our-activities/resource-center/fact-sheets/financial-factors-in-selecting-plan-investments