Sumary of US proposes reversing Trump-era rules on ESG investing:
- NEW YORK (NYTIMES) – The US Labor Department proposed rule changes on Wednesday (Oct 13) that would make it easier for retirement plans to add investment options based on environmental and social considerations – and make it possible for such options to be the default setting upon enrollment.
- In a reversal of a Trump-era policy, the Biden administration’s proposal makes clear that not only are retirement plan administrators permitted to consider environmental and social factors, it may be their duty to do so – particularly as the economic consequences of climate change continue to emerge.
- Labor Secretary Marty Walsh said the department consulted consumer groups, asset managers and others before writing the proposed rule and that the change was considered necessary because the old one appeared to have a “chilling effect” on using environmental, social and governance factors, better known as ESG, when evaluating investments.
- The new regulations would also make it possible for funds with environmental and other focuses to become the default investment option in retirement plans such as 401(k)s, which the previous administration’s rules had prohibited.
- But the rule would not permit plan overseers to sacrifice returns or take on greater risks when analyzing potential investments with a focus on ESG, Labor Department officials said.
- Aron Szapiro, head of retirement studies and public policy at Morningstar, said the proposed rule change would help bring retirement plans more in step with how the broader investment industry considered ESG factors.
- The proposed change indicates plan managers are allowed to consider ESG factors in their initial analysis of investments instead of only at the very end – a change that Labor Department officials argued still maintains that principle, because managers still are not permitted to sacrifice returns for those kinds of ancillary benefits.