The US Department of Labor on Friday finalized a rule that pension fund managers must put retirees’ financial interests ahead of sustainability considerations.
The DoL published a final rule stipulating that ERISA (The Employee Retirement Income Security Act) plan fiduciaries cannot invest in “non-pecuniary” vehicles that sacrifice investment returns. However, the ruling does not include references to ESG investing but instead focuses on pecuniary factors which the department says have a material effect on the risk and return of an investment.
“Retirement plan fiduciaries may never sacrifice investment, take on additional risk or increase cost in order to promote goals unrelated to the financial interests of their plan participants,” said Jeanne Klinefelter Wilson, acting assistant secretary of Labor for the Employee Benefits Security Administration. Now, this does not mean that fiduciaries are prohibited from considering such issues as environment impact and workplace practices when they are relevant to the financial analysis because these issues are pecuniary in that instance, and therefore appropriate considerations under the rule.”
A senior Labor Department official noted that “ESG” is not mentioned anywhere in the rule text, though it is mentioned extensively in the preamble. “The focus on the final rule is on whether a factor is pecuniary, not whether it’s an ESG factor,” the official said.