US Department of Labor issues final rule allowing retirement plans to consider climate change in investment decisions

The US Department of Labor (DOL) Tuesday announced a final rule that allows Employee Retirement Income Security Act (ERISA) plan fiduciaries to consider climate change and other social and governance factors when they select retirement investments and exercise shareholder rights. The final rule is “Prudence and Loyalty in Selecting Plan Investments and Exercising Shareholder Rights.”

In response to the new rule, Secretary of Labor Marty Walsh stated:

Today’s rule clarifies that retirement plan fiduciaries can take into account the potential financial benefits of investing in companies committed to positive environmental, social and governance actions as they help plan participants make the most of their retirement benefits. Removing the prior administration’s restrictions on plan fiduciaries will help America’s workers and their families as they save for a secure retirement.

In 2020, the last year of the Trump administration, the DOL issued two final rules. The first rule required fiduciaries to select investments and investment courses of action based solely on consideration of “pecuniary factors.” The second rule addressed plan fiduciaries’ obligations when voting proxies and exercising other shareholder rights in connection with plan investments in shares of stock.

In January 2021, President Joe Biden signed Executive Order 13990. The order directed agencies to review regulations promulgated between 2017 and January 2021 inconsistent with the policies of improving public health and protecting the environment.

The DOL’s final rule results from the order and reverses the two Trump-era regulations. Now fiduciaries may, but do not have to, consider environmental, social, and corporate governance factors on investments. These factors may also be considered when exercising shareholder voting rights.