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A new proposal would amend changes made to ERISA less than a year ago that have proved to be detrimental to ESG investing.

By Jean-Philippe Brisson, Paul A. Davies, Nicola Higgs, Malorie R. Medellin, and Deric Behar

In a sweeping reversal of Trump-era policies, the US Department of Labor (DOL) has issued a proposed rule, Prudence and Loyalty in Selecting Plan Investments and Exercising Shareholder Rights (the Proposal), that would allow retirement savings plans to choose investments using analyses that incorporate climate change risks and other environmental, social, and governance (ESG) criteria.

The Proposal, if adopted, would amend the DOL rule Financial Factors in Selecting Plan Investments (the Rule), which was published in November 2020. The Rule adopted amendments to certain provisions of the “investment duties” regulation under Title I of the Employee Retirement Income Security Act of 1974, as amended (ERISA), and required fiduciaries of pension plans (and other benefit plans covered by ERISA) to choose investments “based solely on pecuniary factors” relevant to a particular investment. In effect, the Rule was premised on the idea that ESG factors are at odds with financial factors and fiduciary responsibilities of plan sponsors, and therefore plan fiduciaries should be restricted from making investment decisions based on ESG factors that are not primarily “pecuniary in nature” (see this Latham post for more information).

In its finalized rule amending ERISA, the DOL makes financial factors paramount in a fiduciary’s responsibility to investors.

By Paul A. Davies, Nicola Higgs, Kristina S. Wyatt, and Deric Behar

On October 30, 2020, the US Department of Labor (DOL) published Financial Factors in Selecting Plan Investments (the Rule) and a related Fact Sheet, a codification of the spirit, if not the exact words, of a controversial proposal issued by the DOL in June 2020 (the Proposal). The Rule adopts amendments to certain provisions of the “investment duties” regulation under Title I of the Employee Retirement Income Security Act of 1974, as amended (ERISA), and requires fiduciaries of pension plans (and other benefit plans covered by ERISA) to choose investments “based solely on pecuniary factors” relevant to a particular investment. The net effect is to restrict plan fiduciaries from making investment decisions guided by goals or policies other than achieving the highest possible return for investors. Non-financial goals would ostensibly include any environmental, social, or governance (ESG) factors that many investors consider important to their investment decision-making.