President Biden has issued an Executive Order that, among other things, directs the Labor Secretary to reconsider rules that would have barred consideration of ESG factors in investment decisions.
Specifically, the May 20 Executive Order on Climate-Related Financial Risk directs the Secretary of Labor to “consider suspending, revising, or rescinding any rules from the prior administration that would have barred investment firms from considering environmental, social and governance factors, including climate-related risks, in their investment decisions related to workers’ pensions.”
Under the heading, “Bolster the Resilience of Life Savings and Pensions,” the order also asks the Labor Department to report on other measures that can be implemented to protect the life savings and pensions of U.S. workers and families from climate-related financial risk, and to assess how the Federal Retirement Thrift Investment Board has taken environmental, social, and governance factors, including climate-related risk, into account.
The order is clearly intended to mute, and likely reverse, two final rules published in 2020 by the Trump administration that undermined consideration of environmental, societal and governance issues by ERISA fiduciaries.
Of course, in mid-March the Department of Labor’s Employee Benefits Security Administration had already announced that it would not enforce the final rules on Financial Factors in Selecting Plan Investments (frequently referred to as “the ESG rule”) and Fiduciary Duties Regarding Proxy Voting and Shareholder Rights.
In fact, President Biden in one of his first Executive Orders had already directed a review of the ESG-less Financial Factors rule. In addition, Labor Secretary nominee Marty Walsh had indicated in written responses to his Senate confirmation hearing that he planned to revisit the ESG and proxy voting rules.
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