US: Department of Labor Rule on ESG Investing Nears Issuance

The U.S. Department of Labor’s proposed rule on the consideration of ESG factors in connection with pension plan investments is reportedly under review by the White House, strongly indicating that the final rule could be issued within the next few weeks.

As we have previously written, the DOL’s proposal, which was issued in October 2021, represents a marked change in policy from the previous administration. Under the Trump Labor Department’s 2020 regulation, fiduciaries making decisions in connection with retirement plan investments were strictly limited to considering so-called “pecuniary factors,” and were barred from casting proxy votes on the basis of “policy-related or political issues” – both of which were understood to disfavor ESG investing strategies. The new proposed Rule would permit fiduciaries of retirement plan investments to consider climate change and other ESG factors which are material to investments, and would remove the above-mentioned limitations on proxy voting rights.

While the DOL proposal is consistent with the Biden Administration’s “whole-of-government” approach to climate and ESG issues at the federal level, certain states are choosing a different path. Various officials in a number of states including Florida, Louisiana and Indiana have recently adopted resolutions or issued guidance suggesting that the consideration of ESG criteria in connection with state pension funds violates fiduciary duties under applicable state laws.

Given this sharp contrast between the Federal and State approaches on this issue, companies should closely monitor legal developments in this space to ensure compliance with fast-evolving regulatory expectations.