June 26, 2020
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
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The opinions expressed are those of the author(s) and do not necessarily reflect the views of the firm or its clients, or any of its or their respective affiliates. This article is for general information purposes and is not intended to be and should not be taken as legal advice.
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