Under the U.S. Department of Labor’s finalized ESG rule, fiduciaries working on retirement plans that fall within the scope of the Employee Retirement Income Security Act must now consider investments based purely on financial risks and returns. Notably, the DOL eliminated all ESG-specific references in the final regulation, which was released on Oct. 30. Articles published by the Financial Times, WSJ Pro Private Equity, Ignites and S&P Global Market Intelligence include insights from ERISA partner Josh Lichtenstein.
In a Nov. 4 article by the Financial Times titled “US election: What it means for climate change and ESG,”in the final rule, the labor department opted “to no longer focus on ESG funds at all,” said Josh.
In Ignites’ Nov. 4 article titled “DOL’s Revamped ESG Rule More 'Livable' Than Proposal,” Josh outlined how the DOL’s changes make the final rule “much more livable” for asset managers than the agency’s June proposal. “The proposal, taken on its face, had the potential to create very material problems for the asset management industry, especially if trying to operate on a global basis and also comply with the [European Union’s] rules,” Josh said.
In S&P Global Market Intelligence’s Nov. 3 piece titled “Sustainable investment groups weigh next steps on Labor Department's ESG rule,” Josh highlights that Whether the rule goes into effect could be dependent on the U.S. elections Nov. 3. If a blue wave were to occur, where former Vice President Joe Biden wins the White House and Democrats take the U.S. Senate, lawmakers could unravel the DOL rule under the Congressional Review Act, which allows lawmakers and the president to repeal a federal agency's rule as long as they vote to do so within 60 legislative days, Josh said.
The final rule is much less disruptive than the June version would have been, said Josh in a Nov. 12 article published by The Wall Street Journal Pro Private Equity (also appearing in Private Equity News) titled “New Rule Complicates Private Equity’s ESG Push.” The final rule is significantly toned down from the draft proposal, which would have essentially placed ESG funds in a special category and made investing in them much more difficult, Josh said. “Under the final rule, they did not place ESG funds on a different playing field, but said that any investment must be made on purely pecuniary factors,” he added.
Private equity may need to adapt to the new rule by marketing ESG funds based on their financial advantages, rather than social or environmental benefits, Josh noted.
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