Blog: DOL Rolls Out ESG Rule to Undo ‘Chilling Effect’ of Trump-Era Regulation – Financial Advisor IQ

The Department of Labor has finalized its new rule on environmental, social and governance investing in retirement plans, the intent of which is to counteract the negative effects of Trump-era regulation.

The most recent rule, dubbed “Prudence and Loyalty in Selecting Plan Investments and Exercising Shareholder Rights,” allows plan fiduciaries to “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,” Secretary of Labor Marty Walsh said in an announcement on Tuesday.

When the rule was first proposed last year, the DOL said that it may require, rather than merely allow, plan fiduciaries to take into account ESG factors when considering portfolio returns and to evaluate the effect of climate change policy changes on investment returns.

The Tuesday announcement also again referred to the “chilling effect” on ESG investments by the Trump administration.

Under Trump, the DOL finalized a regulation that required retirement plan fiduciaries to abide by a “pecuniary” standard and sponsors to prove that their ESG picks were “economically indistinguishable” from other investments.

“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,” Lisa Gomezment, assistant secretary for Employee Benefits Security, said in Tuesday’s statement. “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 new regulation also allows plan fiduciaries to take into account climate change and other ESG factors in proxy voting, according to the DOL.

Under Trump, the agency finalized a rule requiring plan fiduciaries to proxy vote only based on their plans’ financial performance.

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