The Department of Labor announced today that it will not enforce rules enacted recently by the Trump administration that put restrictions on ESG investing in retirement accounts.
The ESG rules caused confusion and controversy over what fiduciaries were permitted to include in 401k and similar defined contribution plans and the possible sanctions for violations.
The DOL also said it would not be enforcing new fiduciary rules regarding proxy voting that were adopted late last year.
“Until the publication of further guidance, the department will not enforce either final rule or otherwise pursue enforcement actions against any plan fiduciary based on a failure to comply with those final rules with respect to an investment, including a Qualified Default Investment Alternative, or investment course of action or with respect to an exercise of shareholder rights,” the DOL’s Employment Benefits Security Administration said in a statement.
“These rules have created a perception that fiduciaries are at risk if they include any environmental, social and governance factors in the financial evaluation of plan investments, and that they may need to have special justifications for even ordinary exercises of shareholder rights,” Ali Khawar, principal deputy assistant secretary for employee benefits security administration, said in a statement.
The DOL’s decision responds to a President Joe Biden executive order that directed federal agencies to review all rules issued during the Trump Administration to ensure they protect public health and tackle the climate crisis.
“We intend to conduct significantly more stakeholder outreach to determine how to craft rules that better recognize the important role that environmental, social and governance integration can play in the evaluation and management of plan investments while continuing to uphold fundamental fiduciary obligations,” Khawar said.
Until the publication of further guidance, the department said it will not enforce either the ESG or voting final rule or otherwise pursue enforcement actions against any plan fiduciary based on a failure to comply with those rules.
On Nov. 13, the department published a final rule on “Financial Factors in Selecting Plan Investments” that adopted amendments to the “Investment Duties” regulation under Title I of ERISA.
The amendments generally require plan fiduciaries to select investments and investment courses of action based solely on consideration of “pecuniary factors.”