The DOL will not enforce two final rules concerning environmental, social, and governance factors ("ESG") in plan investment decisions ("Financial Factors in Selecting Plan Investments" issued in November 2020) and fiduciary duties related to proxy voting and shareholder rights ("Fiduciary Duties Regarding Proxy Voting and Shareholder Rights" issued in December 2020). (See previous coverage on the adoption of the rules, respectively here and here.)
In a public statement, the DOL said that it "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 with respect to an investment, including a Qualified Default Investment Alternative, or investment course of action or with respect to an exercise of shareholder rights."
On January 20, 2021, the Biden administration issued Executive Order 13990 ("Protecting Public Health and the Environment and Restoring Science to Tackle the Climate Crisis") which directed federal agencies to review existing regulations, adopted between January 20, 2017 and January 20, 2021, that are inconsistent with the promotion of the environment and that are not guided by "best science." The DOL reported that commenters questioned whether the rulemakings were "rushed" unnecessarily and whether they addressed "the substantial evidence" concerning ESG in improving investment value and long-term investment returns for retirement investors. Further, commenters reported that "the rules, and investor confusion about the rules, have already had a chilling effect on appropriate integration of ESG factors in investment decisions."
The DOL stated that it will not enforce the rules without further guidance.
Commentary
Both of these rules were viewed as discouraging fiduciaries from taking ESG considerations into account in investing and in voting shares, respectively. There is little doubt that the DOL will revise both rules.
Primary Sources
- DOL Press Release: U.S. Department of Labor Releases Statement on Enforcement of Its Final Rules on ESG Investments, Proxy Voting by Employee Benefit Plans
- DOL Statement: Statement regarding Enforcement of Final Rules on ESG Investments and Proxy Voting
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