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Sustainability Matters

Sustainability Matters: Overwhelming Opposition to Proposed Regulation Limiting the Use of ESG in Retirement Plans

Investors take exception to Department of Labor proposal in public comments.

The U.S. Department of Labor has proposed a rule that would limit the use of investments that consider environmental, social, and corporate governance factors in worker retirement plans subject to ERISA, including 401(k) plans.

The proposed rule questions the financial materiality of ESG issues and assumes that ESG-focused investment strategies and funds are primarily focused on providing “nonpecuniary” benefits, often at the expense of “pecuniary” benefits, otherwise known as risk-adjusted returns. As a result, the proposal lays out burdensome new rules for the conditions under which plan fiduciaries can include ESG investments and out-and-out bans them from being designated as qualified default investment alternatives in 401(k) plans.