DOL: No Enforcement of Rules on ESG Investments & Proxy Voting

On March 10, 2021 the Department of Labor (DOL) issued a “Statement Regarding Enforcement of its Final Rules on ESG Investments and Proxy Voting by Employee Benefit Plans” (the “Statement”).

The Statement addresses the DOL’s present position regarding final rules the DOL published that amended investment duties of fiduciaries under the Employee Retirement Income Security Act of 1974 (“ERISA”) regulations:

  • A final rule published by the DOL on November 13, 2020 that amended the regulations to require fiduciaries investment decisions be based “solely on consideration of ‘pecuniary factors;’ and
  • A final rule published by the DOL on December 16, 2020 that amended the regulations to address fiduciary obligations when voting proxies or exercising other rights in connection with plan investments.

The Statement instructs that the DOL will not enforce either of the final rules issued amending the investment duties, previously described. The Principal Deputy Assistant Secretary for the Employee Benefits Security Administration (the enforcement wing of the DOL), stated “[t]hese rules have created a perception that fiduciaries are at risk if they include any environmental, social, and governance factors in the financial evaluation of plan investments and that they may need to have special justifications for even ordinary exercises of shareholder rights.” This concern is reflective of language contained in the preamble to one of the final rules which stated, “ESG investing raises heightened concerns under ERISA.”

The DOL left little doubt that the long-term prospect of the current final rule construct will be amended in stating that they intend to “ . . . determine how to craft rules that better recognize the important role that [ESG] integration can play in the evaluation and management of plan investments, while continuing to uphold fundamental fiduciary obligations.”

From a practical perspective, this means a short-term return to following sub-regulatory guidance that’s been issued numerous times by the DOL going as far back as 1994. From a longer-term perspective, we will continue to monitor any commentary, publication, or statements from the DOL and provide updates as may be appropriate.

Representatives offer products and services using the following business names: Summit Group of Virginia LLP – insurance and financial services | Ameritas Investment Company, LLC (AIC), Member FINRA/SIPC – securities and investments | Ameritas Advisory Services (AAS) – investment advisory services. AIC and AAS are not affiliated with Summit Group of Virginia LLP. Products and services are limited to residents of states where the representatives are registered. This is not an offer of securities in any jurisdiction, nor is it specifically directed to a resident of any jurisdiction. As with any security, request a prospectus from your representative. Read it carefully before you invest or send money. A representative will contact you to provide requested information. Representatives of AIC and AAS do not provide tax or legal advice. Please consult your tax advisor or attorney regarding your situation.

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