The Final Rule clarifies the application of ERISA’s fiduciary duties of prudence and loyalty to the selection of plan investments that incorporate ESG goals.

On November 22, 2022, the US Department of Labor (DOL) released a final rule (Final Rule) amending its “Investment Duties” regulation (29 CFR § 2550.404a-1) to clarify the application of the fiduciary responsibility duties under the Employee Retirement Income Security Act of 1974, as amended (ERISA), to the selection of plan investments that consider climate change and other environmental, social, and governance (ESG) factors. The Final Rule provides welcome clarity to plan fiduciaries in light of prior uncertainty as to how they may properly consider ESG factors in plan investment decisions. The Final Rule, while not as ESG-friendly as its proposal, takes what the DOL believes to be a position of “appropriate regulatory neutrality” with respect to the consideration of ESG factors. The changes made by the Final Rule may be relevant to many entities that play a role with respect to investing plan assets, including plan fiduciaries (such as plan investment committees and investment managers of plan assets) and other parties that market their investments to plan fiduciaries, including sponsors of non-plan asset funds. In addition, anyone dealing with state plans will need to consider the rapidly evolving state law landscape regarding investments that include an ESG component.