Insights

The U.S. Department of Labor (DOL) released a rule on Nov. 22, 2022, that clarifies fiduciary responsibilities under the Employee Retirement Income Security Act (ERISA) for selecting investments and exercising shareholder rights such as proxy voting. The regulation, titled “Final Rule on Prudence and Loyalty in Selecting Plan Investments and Exercising Shareholder Rights,” is summarized below. It is commonly known as the ESG rule.

Background About the 2022 ESG Rule

In late 2020, under the prior administration, the DOL published two rules that adopted amendments to ERISA’s “Investment Duties” regulation. The first rule stated that plan fiduciaries must only consider “pecuniary factors” (loosely defined as financial factors) when selecting investments. The second rule addressed fiduciary obligations primarily around proxy voting. These rules caused confusion across a variety of stakeholders, especially around whether environmental, social, and governance (ESG) factors could be considered by plan fiduciaries in their investment decisions and actions. The rules were widely opposed by the investment industry for their “chilling effect” on considering ESG factors in investment decision-making and on the exercise of shareholder rights, including proxy voting.