The regulation reverses efforts by the Trump administration to put restrictions on the ability of fiduciaries to consider any other factors outside maximizing benefits for retirement plan beneficiaries.
Labor said is final rule reopens that door, and fits in with President Biden’s executive order from May 2021 that directed the government to enact policies that "protect the life savings and pensions of America’s workers and families from the threats of climate-related financial risk." According to Labor, giving fiduciaries more leeway to invest in ESG companies is one of those policies.
"The rule announced today will make workers’ retirement savings and pensions more resilient by removing needless barriers, and ending the chilling effect created by the prior administration on considering environmental, social and governance factors in investments," said Assistant Secretary for Employee Benefits Security Lisa Gomez. "Climate change and other environmental, social and governance factors can be useful for plan investors as they make decisions about how to best grow and protect the retirement savings of America’s workers."
Labor said the Trump-era rule "unnecessarily restrained" fiduciaries’ ability to weigh these factors, including when doing so would be more profitable for plan participants.
"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," said Secretary of Labor Marty Walsh. "Removing the prior administration’s restrictions on plan fiduciaries will help America’s workers and their families as they save for a secure retirement."
In its final rule, the Labor Department said the Employee Retirement Income Security Act (ERISA) was interpreted to require retirement plan fiduciaries to act only in the interest of beneficiaries but said it had always interpreted the law in a way that still allows investments in companies that follow ESG guidelines. The Trump administration worked to remove that flexibility, and was worried that investing in ESG companies "subordinated the interests of plans and their participants and beneficiaries to unrelated objectives."
The Trump administration’s Labor Department issued a final rule reflecting this new restriction in November 2020. But on President Biden’s first day in office, he signed an executive order on climate change that directed all federal agencies to review all regulations that might go against it.
In May 2021, Biden signed another executive order, cited by the Labor Department in its final rule, that specifically called on Labor to amend or rescind the Trump-era rule.