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Labor Dept. Publishes Final ESG Rule for Retirement Investments

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The U.S. Department of Labor on Tuesday published a final rule that allows plan fiduciaries to consider climate change and other environmental, social and governance factors when they select retirement investments and exercise shareholder rights, such as proxy voting.

During the Trump administration, the president updated ERISA rules for investment policies to be based solely on ‘pecuniary factors.’

The report claims that after extensive consultations and feedback from a wide range of stakeholders, the department concluded that two rules issued in 2020 during the Trump administration unnecessarily restrained plan fiduciaries’ ability to weigh environmental, social and governance factors when choosing investments, even when those factors would benefit plan participants financially.

“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 Labor Secretary 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.”

The rule, “Prudence and Loyalty in Selecting Plan Investments and Exercising Shareholder Rights,” follows Executive Order 14030, which was signed by President Biden on May 20, 2021.

The executive order directs the federal government to identify and assess policies to protect the life savings and pensions of America’s workers and families from the threats of climate-related financial risk.

“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 Lisa M. Gomez, assistant secretary for employee benefits security. “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.”

The rule will be effective 60 days after its publication in the Federal Register except for a delayed applicability until one year after publication for certain proxy voting provisions to allow fiduciaries and investment managers additional time to prepare.

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