FIDUCIARY FOCUS: DOL PROPOSED RULE – ESG FACTORS & POTENTIAL IMPACTS FOR RETIREMENT PLANS

November 18, 2021

By Sarah Parker, AIF®, Senior Managing Director & Shareholder and Kristen Low, Associate Consultant

The Department of Labor (DOL) proposed a new rule on October 13, 2021, titled “Prudence and Loyalty in Selecting Plan Investments and Exercising Shareholder Rights.”

The proposed rule would allow plan fiduciaries to consider climate change and other such environmental, social, and governance (ESG) factors when selecting investments and exercising shareholder rights for employer-sponsored retirement plans.

The rule supports the notion that ESG factors can be financially material, leading to better long-term, risk-adjusted returns for investors. The proposed rule reiterates, however, that the core duties of ERISA plan fiduciaries should be upheld. These duties include the prudency and obligation of acting in the best interest of the plan participants and beneficiaries.

In addition, the proposed rule would remove language from the 2020 rule that prohibited the inclusion of ESG factors.

This proposal clarifies application of the tie-breaker test, which is used when two investment options have seemingly identical risk/return profiles. ESG components can be used as a deciding factor to incorporate one option over the other.

Clearstead will be monitoring the progress of the proposed rule during the 60-day comment period so that we can provide due diligence updates to our retirement plan clients. If you are an ERISA plan fiduciary and are looking to understand more about the potential impacts of this rule, we welcome you to contact us with questions.

DISCLOSURES

Information provided is general in nature, is provided for informational purposes, and should not be construed as investment, tax or legal advice. These materials do not constitute an offer or recommendation to buy or sell securities. The information provided is from public sources and data available at the time the information was written. Any information provided is subject to change at any time. Clearstead disclaims any liability for any direct or incidental loss incurred by applying any of the information provided. You should consult with a professional before making any investment, tax or legal decisions.