ESG Investments Under the DOL Microscope

ESG investments (investments that consider environmental, social, and governance issues or missions) are the latest ERISA-related topic to be placed under the DOL's microscope.

In a proposed rule published on June 23, the DOL signaled its intent to provide guidelines on the inclusion of ESG investments in ERISA retirement plans. Because ERISA requires fiduciaries of ERISA retirement plans to prudently weigh all relevant factors when assessing plan investments, and that they do so with the best interests of the plan’s participants and beneficiaries in mind, the DOL is concerned that selecting ESG investments solely on their mission-based merits may expose investments to undue risk.

The DOL's aim, according to its fact sheet, is "to assist ERISA fiduciaries by establishing clear regulatory guideposts for plan fiduciaries in light of recent trends involving ESG investing that the Department is concerned may lead ERISA plan fiduciaries to choose investments or investment courses of action to promote environmental, social, and public policy goals unrelated to the interests of plan participants and beneficiaries in financial benefits from the plan and expose plan participants and beneficiaries to inappropriate investment risks."

Specifically, the proposal will make five additions to ERISA section 404(a)(1)(B), which spells out standards and duties fiduciaries must fulfill as they relate to selecting and monitoring plan investments. The additions, laid out in detail in the DOL fact sheet, would add an additional layer to the process of selecting and analyzing investments for retirement plan fiduciaries.

The proposed rule has been subjected to a public comment period. Retirement plan sponsors should stay abreast of this proposal by reviewing the five core additions and consulting their retirement plan advisor or consultant as needed for help with fulfilling fiduciary responsibilities.