Actions Promoting Integration of ESG Considerations in Investment Decisions
Final Rule: Prudence and Loyalty in Selecting Plan Investments and Exercising Shareholder Rights
- Status
- Published (10/13/21)
- Comment period closed (12/31/21)
- Published (12/1/22), which will be effective on 1/30/23 for most of the rule’s provisions, and 12/1/23 for certain provisions pertaining to exercises of shareholder rights.
- Summary
- Clarifies that a plan fiduciary’s determination with respect to an investment or investment course of action must be based on factors that the fiduciary reasonably determines are relevant to a risk and return analysis, and that such factors may include the economic effects of climate change and other ESG factors on the particular investment or investment course of action.
- Applies the same standard to qualified default investment alternatives (QDIAs) as to other investments—i.e., a focus on relevant risk-return factors.
- Confirms that when a fiduciary has prudently concluded that competing investments equally serve the financial interests of the plan over the appropriate time horizon (also known as the tiebreaker scenario), the fiduciary is not prohibited from selecting the investment or investment course of action based on collateral benefits other than investment returns.
- Clarifies that fiduciaries do not violate their duty of loyalty under ERISA solely because they take participants’ preferences into account when constructing a menu of prudent investment options for participant-directed individual account plans.
- Eliminates the special standards for shareholder rights and proxy voting and instead applies the general duties of prudence and loyalty.
- Update: On December 1, 2022, Republican Sen. Cotton (AR) introduced a joint resolution for Congress to disapprove the DOL’s new rule.