This week, the Department of Labor announced that it would not enforce two recent rules – on “Financial Factors in Selecting Plan Investments” and “Fiduciary Duties Regarding Proxy Voting and Shareholder Rights” – pending further review and guidance for investors. The U.S. Impact Investing Alliance applauds this important step and continues to call for swift action to reverse the potential negative effects of these rules.
“Retirement savers and their plan sponsors had mere weeks to provide comments on this pair of rules despite their complexity and far-reaching implications,” said Fran Seegull, President of the U.S. Impact Investing Alliance. “The Department’s decision not to enforce these rules is exactly the right step. Secretary Walsh should prioritize new rulemakings that instruct ERISA-regulated plans that, in no uncertain terms, they can consider the financial materiality of ESG factors or the value to plan participants of constructive engagement through proxy voting.”
The pair of rules, which run counter to the Department’s own precedents in addition to broader market trends, were pushed through on accelerated timelines at the end of 2020. If enforced, the “Financial Factors” rule would have unduly burdened plans seeking to integrate ESG analysis into retirement savers’ investment selections. The “Proxy Voting” rule would have effectively prohibited even routine engagement by retirement plans with corporate management on any sustainability matters.
In its recently released policy report, “Private Capital, Public Good,” the Alliance encouraged the Department to consider rescinding the rules in their entirety and replacing them with rules that reflect the growing understanding that the tools of ESG analysis and shareholder engagement can drive long-term financial performance. An analysis of public comments submitted on the rules, which were only accepted for 30 days, showed that there was overwhelming opposition and concern from retirement plan participants, managers and industry experts.
Read the Alliance’s Comments on the Proposed Rules: