DOL drops Trump ESG plans for new rulings

7 May, 2021

The US Department of Labor is set to formally abandon Trump-era plans to introduce anti-ESG legislation, and will engage with stakeholders to introduce new rules.  

Ali Khawar, acting assistant secretary for the Employee Benefits Security Administration, said during an American Savings Education Council webinar on Thursday that the DOL would not be implementing two specific rulings. 

The first, ‘Financial Factors in Selecting Plan Investments’, stipulated that retirement funds may not make ESG investments unless financial returns or risk mitigation was being clearly prioritised.  

The rule was widely criticised by investors, with the $27bn (£19.5bn) San Francisco City and County Employees’ Retirement System labelling the ruling as “lengthy and confusing” adding that it may “adversely impact the economic best interest of our beneficiaries”. 

Commonly referred to as the ESG Rule, it was quickly addressed by the current administration. President Joe Biden ordered a review of the ruling, signing an executive order on his first day in office. 

The second ruling, ‘Fiduciary Duties Regarding Proxy Voting and Shareholder Rights’, described the process a fiduciary must follow when exercising shareholder rights and casting a proxy vote. 

Complaints around the efficacy and the speed of the rule’s introduction were widespread among stakeholders. 

Following confirmation that the rules will not be enforced, Khawar said that new rulings, driven by stakeholder feedback, should be expected.  Khawar added that work into fiduciary investment will continue, including a focus on defining who qualifies as a fiduciary.