DOL Proposes to Warm the Climate for ESG Investing


The Department of Labor (DOL) proposes to clarify when ERISA plan fiduciaries can consider environmental, social and governance (ESG) factors in investment selection and proxy voting. The proposal would maintain the requirement for fiduciaries to focus on factors material to a risk-return analysis but, unlike the current rule, would make clear that this evaluation may include ESG factors — including climate-change risks. A more flexible tiebreaker standard would apply to consideration of collateral benefits, but with new disclosures for defined contribution (DC) plans. The proposal would lift the restrictions on investments that incorporate nonpecuniary factors from being considered qualified default investment alternatives (QDIAs). DOL also proposes to remove the current rule's proxy-voting policy safe harbors and cumbersome written documentation requirements. Comments on the proposal are due Dec. 13.