Even after the Department of Labor issues its final rule on environmental, social and governance investing, the agency will continue to engage with ESG issues, said Ali Khawar, principal deputy assistant secretary of the DOL's Employee Benefits Security Administration, at Pensions & Investments' Defined Contribution West Conference in Carlsbad, Calif., on Tuesday.
"We think that this rule is an important step, but it's not really going to be the end of our work on it," Mr. Khawar said, delivering the conference's closing keynote speech.
In October 2021, the Labor Department issued a proposed rule — called "Prudence and Loyalty in Selecting Plan Investments and Exercising Shareholder Rights" — that states "in many instances fiduciaries … should consider climate change and other ESG factors in the assessment of investment risks and returns."
In his remarks Tuesday, Mr. Khawar said the DOL sent its final rule to the Office of Management and Budget a few weeks ago, and, as a result, are "pretty close to the end of the process," though he did not share specifics.
ESG investing has seen major pushback from Republican officials across the country. Last week, four GOP representatives introduced a bill in the House specifically targeting the Labor Department's rule proposal.
"The Biden administration's proposed changes to ERISA abandon fiduciary responsibility by allowing 'woke' ESG factors to dictate investment returns — putting Americans' retirement savings at risk," said Rep. Greg Murphy, R-N.C., in a news release. Mr. Murphy introduced the bill along with Reps. Carol Miller, R-W.Va.; David Schweikert, R-Ariz.; and Lloyd Smucker, R-Pa.
"There maybe still is a misconception in the fiduciary community," Mr. Khawar noted, that making ESG considerations is something that's reserved for environmentalists, but "that just doesn't really reflect, I think, where most investors in the U.S. are."
Mr. Khawar said that "literally every major financial institution's come in and talked to us and explained what they're doing to integrate ESG into their operations."
Separately, Mr. Khawar noted that cybersecurity issues remain a priority for the Labor Department.
"We continue to be quite concerned because in the best plans, with the best practices, you're not able to, like, guarantee that you're not going to get a cybersecurity breach," he said, and when not everyone is doing everything they can, "that risk just gets so elevated."
