New bill seeks to resolve DOL about-face on ESG investing for retirement plans

Followers of the latest U.S. developments in sustainable investing will be aware of the Department of Labor's 2020 rule mandating that fiduciaries select investments and investment courses of action based solely on consideration of “pecuniary” (i.e. financial) factors. The DOL under the Biden administration announced in March 2021 that it would not seek to enforce that rule, and indeed President Biden in his May 20, 2021 Executive Order on Climate-Related Financial Risk directed the DOL to consider suspending, revising, or rescinding any rules from the prior administration that would have barred investment firms from considering ESG factors, including climate-related risks, in their investment decisions related to workers’ pensions.

A new bill from three Democratic congresswomen, titled the Financial Factors in Selecting Retirement Plan Investment Act, seeks to resolve the issue by repealing the 2020 DOL rule and clarifying that retirement plans may consider ESG factors in investment decisions "in a prudent manner consistent with their fiduciary obligations" - i.e. the same legal standard applied to non-ESG factors. ESG investments are permitted as qualified default investment alternatives in ERISA-covered plans, and plans can consider ESG factors as tiebreakers when deciding between otherwise comparable options. 

If passed, the act would represent another milestone in sustainable investing consistent with the Biden administration's whole-of-government approach to climate and ESG.