DOL final rule allows fiduciaries to consider ESG factors 

November 23, 2022

The US Department of Labor (DOL) has issued a final rule to replace controversial regulation regarding inclusion of ESG investments in pension plans. 

The Prudence and Loyalty in Selecting Plan Investments and Exercising Shareholder Rights allows plan fiduciaries to consider climate change and ESG factors in selecting investments.  

The rule encourages, but does not require, fiduciaries to consider policies which protect against the threats of climate-related risk.  

Marty Walsh, secretary of labor, said: Today's rule clarifies that retirement plan fiduciaries can take into account the potential financial benefits of investing in companies committed to positive environmental, social and governance actions as they help plan participants make the most of their retirement benefits.” 

The final rule reverses previous regulation that was approved under Trump’s administration in 2020, which prioritised economic value over ESG criteria.  

The previous rule limited fiduciaries from selecting investments based on non-financial matters, such as ESG factors. 

Instead, considerations had to be based solely on financial metrics due to the belief that ESG considerations are outside the traditional financial safety and return on investment criteria. 

This regulation had a “chilling effect” on the use of ESG investment for retirement savings according to Lisa Gomez, assistant secretary at DOL. 

Following the proposal of the regulation, the US Impact Investing Alliance wrote an open letter, urging the DOL to reconsider the introduction of the law.  

In March 2021, the Biden administration blocked the Trump administration’s ruling. The new rule, issued on November 22, follows an executive order signed by President Biden in May 2021. 

Steven Rothstein, managing director of the Ceres Accelerator for Sustainable Capital Markets at Ceres, said: "This rule removes restrictions imposed during the previous administration that made it difficult for 401(k) and other retirement plan sponsors to include climate-aligned and other ESG funds in the list of options available to participants.” 

The Employee Retirement Income Security Act (ERISA) requires return-on-investment criteria to be the sole consideration for fiduciaries.  

Biden’s administration has stated that the newly issued regulations are within the ERISA framework because ESG considerations are treated as financial risks.  

Minerva’s blog focuses on the latest developments in ESG investing and stewardship. Minerva is a global provider of sustainable stewardship solutions with over 25 years of expertise. Minerva empowers investors by providing essential tools, including ESG research and data, enabling them to navigate the intricate landscape of stewardship and proxy voting, whilst ensuring their decisions are well-informed and aligned with sustainable principles.