In yesterday’s post, we said we expected that the Biden Administration would re-focus attention on the US conflict minerals rule. In a similar vein, by the end of Inauguration Day, the Biden Administration indicated that it wants a review of recent amendments to a Labor Department rule that require that ERISA plan fiduciaries put financial considerations above all other considerations when making investment decisions.
Amendments to the Labor Department’s “do-good investing rule” took effect on January 12, 2021. Those amendments require that ERISA plan fiduciaries select investments based solely on financial considerations. Notably, the amended rule does recognize that some environmental, social and governance (ESG) factors can be relevant to the analysis of economic value and allows non-pecuniary considerations under certain circumstances. The investing rule applies to private-sector employee benefit plans. Under the rule in effect before January 12, 2021, when competing investment options served a plan’s financial interests equally well, fiduciaries could choose to make investment decisions to advance ESG goals. The differences between the prior rule and the amended rule may seem to be only at the edges. But, the effect of the amendments is significant. It seems likely that a reversal will come from the Biden Administration, and that reversal will probably go further than the prior rule in promoting the consideration of ESG factors when making investment decisions.
The question of investment decision factors has been the subject of disagreement for many years, and it has been the subject of more pointed conversation during the last few years. The back-and-forth with this rule represents the clash of interests between plan fiduciaries who want to pursue ESG objectives, plan fiduciaries who want certainty and are concerned about liability, investors who want to promote ESG goals, and parties who say it is difficult to analyze and compare the plethora of ESG characteristics of companies.
Conflict minerals and other responsible sourcing concerns are among the ESG factors getting increased attention. So, we will continue to watch these developments to alert companies about the importance and expanding relevance of their conflict minerals disclosures.