DOL Proposed Rule Would Impose Significant Limitations on the Use of ESG Considerations in Selecting ERISA Plan Investments
On June 23, 2020, the Department of Labor (the “DOL”) issued a proposed regulation (the “Proposed Rule”) to address when and how plan fiduciaries subject to the Employee Retirement Income Security Act of 1974, as amended (“ERISA”) can consider environmental, social, and corporate governance (“ESG”) factors in selecting plan investments. This Proposed Rule builds on previous guidance issued by the DOL in the form of Field Assistance Bulletins. The Proposed Rule was issued in response to increasing interest by institutional investors in considering ESG-related factors when making investments. The DOL made clear in the preamble to the Proposed Rule that, with limited exceptions, it is not supportive of these types of considerations because of a concern that fiduciaries are over-emphasizing ESG factors at the expense of factors that more directly bear on the financial risks and returns of a particular investment. Notably, the Proposed Rule could apply to the fiduciaries (e.g., general partners or investment managers) of private equity funds that are deemed to hold plan assets.