As we count down these last few days before the Biden Labor Department finalizes its new rule on environmental, social, & governance ("ESG") investments, the big question is: when will fiduciaries be permitted to take ESG values into account when making investment decisions for 401(k) plans? The Department of Labor, which sent its final version of the rule to the White House for approval, has wrestled with when and how fiduciaries can consider non-economic ESG factors for over 30 years, and it has issued guidance in each of the Clinton, Bush, Obama, and Trump administrations. If the regulatory instability has you worried, we're here to help.
What's the big disagreement?
Administrations have generally agreed that ESG factors can be taken into account if their consideration boosts investment return or reduces investment risk. Where Republicans and Democrats have disagreed is when ESG factors can be considered where those considerations do not boost investment performance. Republicans have suggested never, unless there is a tie. Democrats have suggested whenever there is a tie. Both Democrats and Republicans have used the "tie-breaker" phrasing, but both parties have meant different things.
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