Labor Department Rescinds ESG-Related Rules
The Department of Labor announced that it would not enforce rule amendments it published late last year that required plan fiduciaries to select investments and investment courses of action based solely on consideration of “pecuniary factors” and which addressed ESG considerations in voting proxies. The DOL decision follows an executive order from the White House directing federal agencies to review certain existing regulations adopted during the Trump Administration. The DOL said it has heard from a wide variety of stakeholders, including asset managers, labor organizations and consumer groups, who have asked whether these two final rules properly reflect the scope of fiduciaries’ duties under ERISA to act prudently and solely in the interest of plan participants and beneficiaries. Stakeholders also questioned whether those rulemakings were rushed unnecessarily and failed to adequately consider and address the substantial evidence submitted by public commenters on the use of ESG considerations in improving investment value and long-term investment returns for retirement investors. The Department said stakeholders have observed that the rules, and investor confusion about the rules, have already had a chilling effect on appropriate integration of ESG factors in investment decisions, including in circumstances that the rules can be read to explicitly allow. Accordingly, the DOL stated, it intends to revisit the rules and until further guidance 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.