The Labor Department on Nov. 22 finalized its rule — Prudence and Loyalty in Selecting Plan Investments and Exercising Shareholder Rights — after unveiling the proposal in October 2021.
The new rule, which went into effect Jan. 30, is a reversal of two rules promulgated late in the Trump administration that said retirement plan fiduciaries could not invest in "non-pecuniary" vehicles that sacrifice investment returns or take on additional risk and outlined a process a fiduciary must undertake when making decisions on casting a proxy vote.
Ms. Gomez on Monday said the Trump-era rules caused investor confusion and had a chilling effect on the integration of ESG factors into fiduciaries' investment decisions, which led to missed opportunities.
Addressing those issues has been a focus of the Biden administration, Labor Secretary Marty Walsh said during the webinar, citing an executive order by President Joe Biden in May 2021 directing federal agencies to assess and mitigate financial risks related to climate change.
"It's well established that ESG factors can impact investments, so if investors can't take these factors into account, it's a problem," Mr. Walsh said.
Both he and Ms. Gomez made clear that the new rule does not require fiduciaries to consider ESG factors and maintains the department's position that fiduciaries may not sacrifice investment returns or assume greater investment risks as a means of promoting collateral social policy goals.
"A fiduciary's determination with respect to investments has to be based on factors that the fiduciary reasonably determines are relevant to the risk and return analysis," Ms. Gomez said.
Eric Pitt, climate finance consultant at Ceres, said during the webinar that the new rule is "quite neutral, allowing fiduciaries to consider climate or other sustainability risks when they're financially relevant, not encouraging or requiring them to do so."
Elected Republicans in Washington and across the country see things differently and are seeking to scrap the rule all together.
Republican attorneys general from the 25 states filed a lawsuit Jan. 26 in U.S. District Court in Amarillo, Texas, arguing that the Labor Department's rule undermines key protections for retirement savers, oversteps the department's authority under the Employment Retirement Income Security Act, and is arbitrary and capricious.
Ms. Gomez said Monday that she couldn't comment on the ongoing litigation.
Also, every Senate Republican, led by Sen. Mike Braun of Indiana, along with Sen. Joe Manchin, D-W.V., and Rep. Andy Barr, R-Ky., announced on Feb. 1 that they plan to reintroduce a joint resolution under the Congressional Review Act to nullify the rule. The CRA lets Congress disapprove — by a simple majority vote — a final rule issued by a federal agency if it has not been in effect for more than 60 legislative days. But even if it were to pass the House and Senate — a long shot proposition — Mr. Biden would veto it.
