The Biden administration has proposed changes to make it clear that administrators of retirement-investment plans can consider environmental, social and governance factors in their investment decisions.
The proposal is in line with President Joe Biden’s executive order to safeguard Americans’ financial security from climate-related financial risk, according to the Department of Labor. It follows through with the current administration’s decision not to enforce the rules finalized under the Trump administration last year, which contained language requiring retirement-plan fiduciaries to make investment decisions based solely on “pecuniary,” or financial, factors.
As part of its responsibilities to protect the rights of U.S. workers, job seekers and retirees, the Labor Department oversees retirement plans.
The proposed rule “will bolster the resilience of workers’ retirement savings and pensions by removing the artificial impediments — and chilling effect on environmental, social and governance investments — caused by the prior administration’s rules,” Acting Assistant Secretary for the Department of Labor’s Employee Benefits Security Administration Ali Khawar said in a statement.
The department is proposing the changes after it heard from stakeholders who expressed concern that the rules put forth by the previous administration “have been interpreted as putting a thumb on the scale against the consideration of ESG factors, even when those factors are financially material,” according to supplementary information included in the proposed rule.
“The DOL’s stance on ESG investing is squarely in alignment with the fiduciary duty of the retirement plans they oversee, full stop,” said Natasha Lamb, a managing partner at Arjuna Capital, a Massachusetts-based wealth management firm. “Incorporating environmental, social and governance risks and opportunities into retirement portfolios not only allows investors to mitigate material climate change risk but also invest in companies that are commercializing profitable solutions to our sustainability challenges.”
The Labor Department is inviting public comment on the proposed rule until Dec. 13.
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