Department of Labor Releases Final Rule on ESG Considerations by ERISA Fiduciaries

The US Department of Labor (DOL) released a final rule, titled “Prudence and Loyalty in Selecting Plan Investments and Exercising Shareholder Rights,” outlining how fiduciaries regulated under ERISA may incorporate ESG factors in fiduciary investment decision-making for retirement plans. Additionally, the final rule also clarifies how ERISA fiduciaries can satisfy their duties when voting proxies and exercising other shareholder rights for plans. The rule clarifies that ERISA-regulated fiduciaries may take into account ESG factors that are relevant to an investment’s expected risk return and other financial factors, but does not require that they do so. Prior DOL guidance permitted the use of ESG or similar factors to be used to break a “tie” between investments under consideration. The final rule, however, allows for consideration of collateral benefits where competing investments “equally serve the financial interests of the plan.” Last, the final rule permits fiduciaries of participant-directed plans to consider participant preference when selecting plan investment options, under certain circumstances.

Click here to read a client alert from Morgan Lewis covering the DOL’s final rule on ESG considerations by ERISA plan fiduciaries.