The benefits community must prepare for new ESG investing rules

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As the U.S. Department of Labor considers feedback on a proposed rule that will affect investors’ ability to consider climate risk when making decisions about nearly $8 trillion in assets, benefits brokers, money managers and retirement advisors should take this time to understand the implications and heightened expectations of their clients and constituents. With 140 million-plus Americans participating in 401(k) or other ERISA plans, it’s crucial fiduciaries look out for the best interests of their plan participants and that prudent investors consider climate risk in their investment decisions.

As part of a broader federal initiative to advance environmental justice and address climate change, the Department of Labor’s proposed rule, Prudence and Loyalty in Selecting Plan Investments and Exercising Shareholder Rights, follows President Biden’s May 2021 executive order directing all federal agencies to incorporate climate risk and other environmental, social and governance (ESG) issues into financial regulation. This comes after the announcement in March 2021 of a non-enforcement policy for the Trump-era regulations.