Democrats and Republicans in Washington broadly view retirement plan fiduciaries considering ESG factors in investment decisions much differently, with the Trump and Biden administrations promulgating vastly dissimilar regulations on the issue.
A new rule proposal from the Department of Labor, which marks the latest move in a long-lasting regulatory fight, would explicitly permit retirement plan fiduciaries to consider climate change and other environmental, social and governance factors when selecting investments and exercising shareholder rights.
The proposal, which was unveiled Oct. 13 and has a 60-day comment period that concludes Dec. 13, is starkly different from two rules finalized in 2020 during the Trump administration. The proposal should give plan fiduciaries more comfort in integrating ESG factors into their plan lineups, sources said.
"I think this will quite clearly accelerate the incorporation of ESG factors into investment decision-making by ERISA fiduciaries," said George Michael Gerstein, co-chairman of the fiduciary governance and ESG groups at Stradley Ronon Stevens & Young LLP in Washington. "The rule will give plan sponsors enough cover, so they'll feel confident incorporating ESG factors."
Mr. Gerstein added: "If you look at the big picture, I think the mission is accomplished in terms of clearing the air, taking the stigma away, reminding folks that ESG is really important to consider, and that's what this proposal does."
The proposal, called "Prudence and Loyalty in Selecting Plan Investments and Exercising Shareholder Rights," makes clear "that climate change and other ESG factors are often material and that in many instances fiduciaries … should consider climate change and other ESG factors in the assessment of investment risks and returns." It comes after months of stakeholder outreach on the subject and follows an executive order by President Joe Biden in May directing federal agencies to assess and mitigate financial risks related to climate change.