Washington Watch: Retirement stock plans can use ESG scrutiny, new rule at Labor Department says

by | Nov 22, 2022 | Stock Market

The Department of Labor finalized a rule Tuesday that explicitly permits retirement-plan fiduciaries to consider climate change and other environmental, social and governance (ESG) features when selecting investments or meeting shareholder demands. The rule, first proposed in October 2021, essentially reverses two rules advanced under the Trump administration.

One of the Trump-era rules said retirement-plan fiduciaries — professionals required by law to manage a person’s money for the individual’s benefit and not for that of the company or retirement-planning firm — could not invest in “nonpecuniary” vehicles. Nonpecuniary, at least as intended in the old rule, suggested that ESG was an add-on consideration not material to the plan’s performance and, in fact, could sacrifice returns or add additional risk to a plan. A second rule had outlined the process a fiduciary must undertake when making decisions on casting a shareholder proxy vote.Economic interests first Tuesday’s announcement means that retirement planners and advisers won’t face pushback for using ESG
principles to help determine an investment mix for retirement plans, including 401(k)s. But, DOL’s language maintains a long-standing position that plan fiduciaries must put the economic interests of participants and beneficiaries above other considerations, said the Investment Company Institute, the top trade association for the fund industry. ICI said in a release it welcomes the department’s clarification that while fiduciaries may include consideration of climate change and other ESG effec …

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