On June 30th the US Department of Labor released a proposed rule on Financial Factors in Selecting Plan Investments which would amend the “Investment Duties” regulation (12 CFR 2550.404a- 1). The DOL explained in a press release that the rule was designed to “… provide clear regulatory guideposts for plan fiduciaries in light of recent trends involving environmental, social and governance (ESG) investing.” The proposed rule affects employee retirement accounts that fall under the ERISA Act of 1974. At its core, the rule dictates that investment decisions must put “pecuniary factors” ahead of ESG factors when making investment decisions. The rule in its entirety can be found here: https://bit.ly/30wqQqc
The Fixed Income Investor Network’s ESG Task Force convened a meeting on July 14th to discuss the proposed rule and determined that the proposal would have considerable impacts on investment manager’s decision-making ability as it relates to ESG investing criteria. ESG factors have been increasingly applied as a key consideration for investing decisions for investors worldwide since many believe them to be material to long term financial outcomes. The European Commission is currently working toward a regulation which would require ESG factors to be taken into account for investing decisions, running counter to the DOL proposed rule.
Especially concerning to the Task Force was the short public comment period of 30 days, the minimum required. In subsequent discussions with the FIIN ESG Task Force and Executive Committee, it was agreed that a request for extension of the comment period be drafted, in the hope than an extension would allow time for the Association to properly consider the lengthy rule proposal. Over 1,500 comments were submitted to the Department of Labor as of the July 30th deadline. On August 7th, the Department of Labor announced it would not extend the comment period.