Comments on the Department of Labor’s final ESG rule keep rolling in.
Early responses on the final rule have been overwhelmingly positive, with many praising the Department of Labor for allowing retirement plan fiduciaries to consider climate change and environmental, social and governance factors (ESG). Large organizations continued to voice their approval as many processed the final rule.
Lazaro Tiant, sustainability investment director of North America at Schroders, applauded the DOL for remaining relatively consistent in its final rule, compared to initial guidance released in October 2021.
“We recognize that the DOL considered a significant number of comments, and we feel that they were able to make the appropriate adjustments to provide further clarity,” he said.
Tiant also touched on the DOL’s additional provision in considering participant preferences when deciding whether to implement ESG funds, highlighting its potential “significant change for retirement plans going forward.” “Overall, we believe that understanding the nuances of ESG-related factors helps give investors a fuller perspective of risk and return, and we look forward to working with retirement plans on providing education to support their efforts to put the provisions of the new rule into practice,” he added.
Other parties remained more neutral of the final rule, stating that despite the DOL’s approval of ESG factors in investments, the Labor Department remains impartial on whether plan sponsors and companies do offer socially responsible or sustainable investments.
“The Department of Labor’s final rule is neutral when it comes to the consideration of environmental, social, and governance (ESG) factors,” said Elena Barone Chism, deputy general counsel at the Investment Company Institute (ICI).
Chism also pointed out that companies must still consider the financial interests of participants and beneficiaries before adding ESG investments. “Importantly, [the final rule] maintains the long-standing position that plan fiduciaries must put the economic interests of participants and beneficiaries above societal considerations when selecting plan investments,” she said. “ICI welcomes the Department’s clarification that while fiduciaries may include consideration of climate change and other ESG effects as part of their risk-return analysis, they must put the financial interests of plan participants first and cannot sacrifice potential returns for these goals.”
Jason Berkowitz, chief legal and regulatory affairs officer at the Insured Retirement Institute (IRI), echoed similar sentiments, underscoring the organization’s belief of neutrality on all investment options. “Our initial read of the U.S. Department of Labor ESG regulation is that it is generally consistent with IRI’s position that ESG factors and investments should be treated no differently than non-ESG factors and investments,” he said. “We believed that neutrality between ESG and non-ESG investment factors was attainable under a rule built around ERISA’s fundamental principles of prudence and loyalty, under which plan fiduciaries are required to act in the best interest of plan participants, and it appears that the Department has achieved this objective.”
He added, “This final rule is the result of an effective rulemaking process, as the Department sought out, heard, and reacted to constructive feedback from IRI and other stakeholders. We look forward to seeing this collaborative approach put to use in future DOL rulemaking efforts.”
Like Schroders’ Tiant, Brian Graff, chief executive officer at the American Retirement Association, also touched on the participant preferences provision in a LinkedIn post. “Further, and equally important, the final rule adds a new provision to the regulation allowing for plan fiduciaries to consider ‘participant preferences’ and consequently allowing for the addition of ESG-type 401(k) investment options if desired by participants provided, they otherwise satisfy applicable fiduciary standards,” he said. “This is a big win for retirement plan fiduciaries and plan sponsors, and we appreciate the Department’s willingness to consider the concerns raised by the retirement plan community.”
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