The Department of Labor (DOL) recently released guidance (87 FR 73822) for private sector retirement plans to consider the effect environmental, social and corporate governance (ESG) factors have on an investment — or when exercising shareholder rights when selecting investments. The final rule eases restrictions on fiduciaries considering such environmental and socially conscious factors on retirement investing.
The final rule follows two executive orders that required the DOL to “suspend, revise, or rescind” ESG regulations promulgated under former President Trump.
Among other changes, the final rule amends the previous regulation in the following ways:
- Eliminating a statement regarding the fiduciary duty to manage shareholder rights. The final rule removes the statement that the fiduciary duty “[did] not require the voting of every proxy or the exercise of every shareholder right,” because the DOL believed the language had potential to be misconstrued to suggest that plan fiduciaries should be indifferent to the exercise of their rights as shareholders, even if the cost is nominal.
- Eliminating two proxy voting safe harbor examples that the DOL believed encouraged abstention in the normal course and did not adequately safeguard the interest of plans and their participants and beneficiaries.
- Removing a paragraph describing specific monitoring obligations that the DOL believed exceeded the statutory obligations of prudence and loyalty.
- Removing a requirement to maintain records on proxy voting activities and other exercises of shareholder rights. The DOL believed this created the misperception that proxy voting and other exercises of shareholder rights are disfavored or carry greater fiduciary obligations than other fiduciary activities.
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