Biden Admin Clears Way for ESG in 401(k)s

The Labor Department cleared the path for employers to consider environmental, social, and governance principles when choosing investment funds for their 401(k) plans.

The move, which was announced on Tuesday, rolls back restrictions put in place during the Trump administration that made ESG considerations more challenging for employers. The final rule on the matter will take effect in 60 days.

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The change is part of a broader push in favor of the ESG movement that has pleased Democrats and earned derision from Republicans.

The previous restrictions “unnecessarily restrained” plan fiduciaries’ ability to weigh ESG factors when picking investments, even when those factors would benefit plan participants financially, the Labor Department said in a news release.

“Today’s rule clarifies that retirement plan fiduciaries can take into account the potential financial benefits of investing in companies committed to positive environmental, social, and governance actions as they help plan participants make the most of their retirement benefits,” Labor Secretary Marty Walsh said.

“Removing the prior administration’s restrictions on plan fiduciaries will help America’s workers and their families as they save for a secure retirement,” he added.

The change is welcome news for those involved in pushing for ESG investing, which includes major financial institutions such as BlackRock. Other agencies, including the Securities and Exchange Commission, have also pitched rules aimed at expanding the ESG movement.

For instance, the SEC proposed a rule to compel companies to disclose climate-related risks, a policy that would lead to indirect pressure on the private sector to turn away from fossil fuels and reduce carbon emissions.

Republicans have been fighting against the growing wave of ESG investing. They contend that the concept runs counter to the most fundamental tenet of investing, which is to return value. Opponents of ESG contend that it uses finance as a vehicle to achieve political ends rather than simply making the biggest gains possible.

BlackRock has been the biggest target in the GOP crusade against ESG. Earlier this month, South Carolina Treasurer Curtis Loftis’s office confirmed it will be divesting all its BlackRock holdings. Several other states also divested from the firm.

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Some, including West Virginia Treasurer Riley Moore, expect the fight over ESG to grow and become more prominent as it becomes increasingly wedged into the national political debate.

“It’s gonna be part of this national conversation, I think. If you’re at the national level, they are talking about this issue,” Moore told the Washington Examiner during a recent interview.