The Department of Labor has
announced that it will not enforce two recently finalized rules, “Financial Factors in Selecting Plan Investments” and “Fiduciary Duties Regarding Proxy Voting and Shareholder Rights,” finalized in November and December 2020.
The amendments required plan fiduciaries to select investments and investment courses of action based solely on consideration of “pecuniary factors,” rather than ESG factors such as climate, diversity or culture. In announcing that the rules won’t be enforced, Principal Deputy Assistant Secretary for the Employee Benefits Security Administration Ali Khawar highlighted that the rules “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.”
The department highlighted concerns they heard from stakeholders that the rules failed to address the substantial evidence submitted by public commenters showing that ESG consideration can improve investment value and provide long-term returns for retirement investors.
The controversial rules still exists but the department is committing to revisiting the rules while the non-enforcement order is in effect. Overall, this move appears to fit within the common theme of the Biden administration’s increased focus on climate risk as well as diversity, equity, and inclusion.
