An ESGplanation of ERISA's New Regulation on Social Investing

The U.S. Department of Labor on October 30, 2020 released a final regulation (the “Final Regulation”) relating to the consideration of non-pecuniary factors by fiduciaries of employee benefit plans that are subject to the Employee Retirement Income Security Act of 1974 (“ERISA”). The Final Regulation is expected to have a pointed impact on the use of environmental, social and governance (“ESG”) factors in the context of investment decisions. The Final Regulation works within ERISA’s existing framework to emphasize the need to focus on pecuniary factors. One key high-level effect of this regulatory initiative will arguably be to increase the focus of plan fiduciaries and investment managers alike on affirmatively identifying the positive economic benefits of ESG-type thinking, as opposed to proceeding on the basis that considering ESG may not be harmful to economic returns. This OnPoint explores the Final Regulation and its potential consequences to plans, investment managers and investment funds.

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