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ESG rule finalized

The Department of Labor (DOL) has finished its ESG rule for retirement plans and sent it to the White House for final approval.

The final version of that rule will not be published until November.

The proposed rule was published in October 2021. It walked back provisions of two Trump-era rules that discouraged the use of ESG criteria in 401(k) Plans and other employer-sponsored retirement plans. The proposed rule stated that ESG factors can be considered financially material in investment selection and that sustainable funds can be used as the default investments on plan menus. By allowing retirement plans to include ESG-themed investments as a default, the DOL would allow target-date funds and other asset-allocation products to widely incorporate ESG factors and not run afoul of regulations.

The proposed rule also sought to clarify that climate change can be a material factor for pension funds to consider when voting on shareholder resolutions.

The problem for me is that I’m from a school where investment selection is based on total return and with a political football this has become, the rule is subject to who is sitting in the White House, and that may change in 2024.

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