The Biden administration’s Department of Labor (DOL) wants to let retirement plans consider environmental, social, and governance (ESG) factors in their investment planning, a reversal of policy from the Trump presidency.
The proposed rule, which now heads into a 60-day comment period, aims to end the previous administration’s barriers to pension and other retirement plans from using ESG considerations in asset allocation, as well as in corporate proxy fights. By allowing ESG factors to be part of the investment process, beneficiaries’ retirement portfolios can better meet the challenge that climate change poses to investments, the idea goes.
“The proposed rule announced today will bolster the resilience of workers’ retirement savings and pensions by removing the artificial impediments—and chilling effect on environmental, social and governance investments—caused by the prior administration’s rules,” said Acting Assistant Secretary for the DOL’s Employee Benefits Security Administration (EBSA) Ali Khawar, in a call to reporters.
He added, “A principal idea underlying the proposal is that climate change and other ESG factors can be financially material and, when they are, considering them will inevitably lead to better long-term risk-adjusted returns, protecting the retirement savings of America’s workers.”
The previous administration had argued that retirement plans should only consider pecuniary factors when selecting investments and not focus on ESG approaches. It worried that ESG thinking would lead to inferior returns.