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Removing Barriers to Considering ESG Factors in Retirement Plan Investments

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Our nation’s workers deserve a secure retirement. They work hard to earn their retirement benefits and rightfully expect the people who manage their plans to work just as hard to invest and protect their retirement plan’s assets wisely. One of the Department of Labor’s primary objectives is to make sure those savings are safeguarded.

Your interests as a retirement saver should always come before politics. In 2020, the previous administration issued regulations that had a strong chilling effect on the ability of workplace retirement plan managers to consider all appropriate information when making decisions about how to invest your retirement funds. This means that they were sometimes stopped from making the best possible choices about how to protect your hard-earned savings.

In particular, careful retirement plan investors may often want to consider environmental, social and governance factors, or “ESG” factors, as they measure the potential value of a particular investment option. Research shows that companies can be more profitable than their competitors when they treat their workers fairly, run their business with an eye on its impact on the environment, and ensure gender, ethnic and cultural diversity on their executive teams. If retirement investors can’t take these factors into account – even when it would benefit you financially – that’s a problem.

Addressing this issue is a top priority of the Biden-Harris administration. In May 2021, President Biden issued an Executive Order on “Climate-Related Financial Risk,” which set forth policies to ease climate-related financial risk and directed the U.S. government to take actions that safeguard the financial security of America’s families, businesses and workers. The order directed the Department of Labor to decide if a new rule was needed to allow retirement plan investors to look at ESG factors.

As part of our deliberations, we’ve listened as investment managers, labor organizations, corporate America, consumer groups, service providers, investment advisers and workers shared their experiences with considering ESG factors in investing retirement funds. We also received comments on our proposed ESG rulemaking effort we announced last year. After considering all of the feedback, we decided that we should revisit the previous administration’s rulemaking, and that a new approach is needed.

Today, the Department of Labor is issuing a rule that reflects what successful marketplace investors already know, and recognizes the meaningful impact that environmental, social and governance factors can have on retirement investments. The new rule allows retirement plan investors to take those factors into account as appropriate. This rulemaking weighed the comments and feedback we received, and takes the department’s thumb off the scale against the use of ESG factors in investment decision-making so it is clear that those factors can be considered to the same extent as any other factor.

As it has for nearly 50 years, federal law continues to demand that investment decisions made by retirement plan investors are based solely on the best financial interests of the plan and beneficiaries like you. The rulemaking we are issuing today helps clarify how these duties apply to selecting investments and exercising shareholder rights. The decisions made by plan investors must be based on factors relevant to an investment risk and return analysis, which may include consideration of climate change and other environmental, social and governance factors.

On every single issue, our commitment is to support workers like you and your families. The people you entrust to administer your retirement plan should have the freedom to make the best possible decisions about how they invest your savings. Our job is to make sure that federal policies allow that to happen. Today’s rulemaking is an important step toward a more secure financial future for America’s workers and their families.

Marty Walsh is the U.S. secretary of labor. Follow him on Twitter and Instagram at @SecMartyWalsh.

 

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