U.S. Department of Labor Backtracks on Controversial Trump-Era ESG Rules
Marking a significant win for ESG investors and sustainability-focused organizations, the U.S. Department of Labor (DOL) announced today that it will not enforce its final rules, established during the Trump administration, on ESG investing and proxy voting.
In June 2020, the DOL announced a proposed rule that effectively would put strict limits on ESG investing in private employer-sponsored retirement plans (ERISA). Despite significant pushback from investors and other sustainability-focused groups, blasting the proposal as outdated and counterproductive, it was finalized by the DOL in November. In a further blow to ESG-focused investors, the DOL also issued rules regarding proxy voting, impacting the ability of investment managers to promote sustainability goals through their investments, and suggesting that proxy voting on ESG issues is not in the interests of investors.
With a new administration now in place, the DOL stated that these rules will not be enforced, noting the views of multiple stakeholder groups questioning whether they properly reflect the scope of fiduciaries’ duties under ERISA to act prudently and solely in the interest of plan participants and beneficiaries, and suggesting that the department rushed the rulemakings unnecessarily, failing to consider the evidence on the use of ESG considerations in improving investment value and long-term investment returns for retirement investors.
Principal Deputy Assistant Secretary for the Employee Benefits Security Administration Ali Khawar, said:
“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. 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.”
Sustainable investment groups welcomed the DOL’s move. Lisa Woll, CEO of US SIF: The Forum for Sustainable and Responsible Investment, called the announcement a “great first step”:
Sustainability-focused nonprofit organization Ceres tweeted: