November 22, 2022

DOL Adopts Final Rule Allowing Fiduciaries to Consider ESG Factors for ERISA Plans

Jeffrey Ross Commentary by Jeffrey Ross

The DOL adopted a final rule allowing ERISA plan fiduciaries to consider environmental, social and governance factors when selecting investments and exercising certain shareholder rights.

Since ERISA was enacted, the DOL released a number of interpretive bulletins regarding its stance on ESG investing for plans, each of which allowed ESG investing to various degrees. In 2020, under President Donald Trump, the DOL amended ERISA's investment duties regulation to require plan fiduciaries to select investments based solely on financial considerations. That amendment effectively limited the ability of plan fiduciaries to take ESG factors into account when investing plan assets. The new rule reverses that position. The DOL stated that an ERISA "fiduciary's determination with respect to an investment or investment course of action must be based on factors that the fiduciary reasonably determines are relevant to a risk and return analysis" and that "[r]isk and return factors may include the economic effects of climate change and other environmental, social or governance factors on the particular investment or investment course of action."

The final rule will become effective 60 days after publication in the Federal Register (with delayed applicability for certain proxy voting provisions).


As noted above, this topic has been addressed by numerous administrations in the past. This is the first time, however, that the DOL explicitly put ESG factors on par with traditional metrics that could affect the performance of an investment. In that regard, this rule appears to go even a step further than those enacted by any prior Democratic administration. It will be interesting to see whether this rule is actually the "final rule," or whether the issue is revisited by a future administration.

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Fried Frank Special Counsel Andrea L. Pollak contributed to this analysis.

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