ERISA plan fiduciaries cannot invest in ESG vehicles that sacrifice investment returns or take on additional risk, according to a proposed rule from the Department of Labor.
"Private employer-sponsored retirement plans are not vehicles for furthering social goals or policy objectives that are not in the financial interest of the plan," Labor Secretary Eugene Scalia said in a news release. "Rather, ERISA plans should be managed with unwavering focus on a single, very important social goal: providing for the retirement security of American workers."
The proposed rule, which was published Tuesday night, would add regulatory text that makes clear that ERISA requires plan fiduciaries to select investments "based on financial considerations relevant to the risk-adjusted economic value of a particular investment or investment course of action," according to a Labor Department fact sheet.
Moreover, the proposal would require fiduciaries to consider other available investments to meet their prudence and loyalty duties under ERISA and outlines the requirements for selecting investment alternatives for 401(k) plans that ostensibly pursue one or more ESG-oriented objectives in their investment mandates or that include such parameters in the fund name.