Department of Labor Proposes to Allow Use of ESG Factors Such As Climate-Related Financial Risk in Retirement Funds
On October 14, 2021, the Department of Labor’s Employee Benefits Security Administration (EBSA) proposed amendments to the Investment Duties regulation under Title I of the Employee Retirement Income Security Act of 1974, as amended (ERISA). The rule would clarify the application of ERISA’s fiduciary duties, including selecting qualified default investment alternatives, exercising shareholder rights such as proxy voting, and the use of written proxy voting policies and guidelines. The rule would also clarify that a fiduciary may consider any factor material to the risk-return analysis, including climate-related financial risk and other Environmental, Social or Governance (ESG) considerations. In the proposal, DOL lists climate change risks that can result in significant economic consequences to businesses, such as sea level rise, changing rainfall patterns, severe droughts, wildfires, and flooding. This proposed rule follows an executive order signed by President Biden directing the federal government to identify climate-related financial risk to protect the life savings and pensions of United States workers and their families. The proposal also counters a 2020 final rule, that would not have allowed benefit pension plans from making climate-related financial risk and other ESG considerations when considering plan investments.
Comments are due on December 13, 2021.