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Executive Order to Review DOL’s ESG Rule Expected in Biden’s Early Days

January 22, 2021

U.S. President Joe Biden will order the Department of Labor to review the so-called “ESG rule,” seen as curbing the ability of retirement plan fiduciaries to include environmental, social and governance investments in plans, according to news reports.

In November, the agency finalized a rule requiring retirement plan fiduciaries to abide by the “pecuniary” standard. While the rule didn’t explicitly reference ESG or ESG-themed funds, the proposal the agency put out in June 2020 for the rule specifically stated that plans would have to prove that the ESG funds they select are “economically indistinguishable” from other investments

Hours before Biden was inaugurated on Wednesday, his team announced plans for executive orders targeting the DOL and nine other federal agencies that must review over 100 rules and policies instituted during Trump’s term, FA-IQ sister publication Ignites writes, citing a notice from Biden’s team. It’s unclear when Biden will sign the executive order covering the DOL, and there's also little clarity surrounding how the review process is supposed to take place, Ignites writes.

The order targeting the DOL’s “Financial Factors in Selecting Plan Investments” rule, which went into effect on January 12, directs the agency to ensure that it’s consistent with Biden’s directive designed to “protect public health, the environment and restore science to tackle the climate crisis,” the notice states, according to Ignites. Under the same order, Biden will also order the Environmental Protection Agency and the Department of Energy to examine rules governing the environment, sustainability and conservation, the publication writes.

“The executive order shifts the rhetoric around the rule from nuanced Erisa fiduciary issues to issues such as global warming and the environment,” says Bradford Campbell, partner at law firm Faegre Drinker, according to Ignites. “Making this an issue of environmental policy rather than financial policy is politically powerful.”

On Wednesday, Biden issued 17 executive orders, including those related to the Covid-19 pandemic, halting funding to build the border wall with Mexico and lifting the ban on travel that targeted several Muslim countries, but the DOL wasn’t included in any of the orders, according to the publication, which cites CNN.

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By Alex Padalka
  • To read the Ignites article cited in this story, click here if you have a paid subscription.
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