Legislation Would Provide Legal Certainty Regarding ESG Factors

Last week, Senators Tina Smith (D-MN) and Patty Murray (D-WA) introduced the Financial Factors in Selecting Retirement Plan Investment Act, along with companion legislation introduced by Representative Suzan DelBene (D-WA).

This legislation permits plan fiduciaries to consider

• environmental, social, and governance (ESG) factors “in connection with carrying out an investment decision, strategy, or objective, or other fiduciary act,” and
• collateral ESG factors “as tie-breakers when competing investments can reasonably be expected to serve the plan’s economic interests equally well with respect to expected return and risk over the appropriate time horizon.”

In using these permitted ESG considerations, plan fiduciaries are not required to maintain any more documentation than is already necessary under ERISA. Nor are they prohibited from treating an investment selected in accordance with these ESG factors as a default investment if such investment otherwise qualifies.

Finally, the legislation formally repeals the Department of Labor’s Financial Factors in Selecting Plan Investments final rule that was issued last year.

FuturePlan will continue to monitor Congressional and Executive actions regarding ESG factors in retirement plans.