Biden Administration Considers Reversing Trump’s ESG Rule Change

The Biden administration is taking steps to possibly reverse the decision by Donald Trump’s U.S. Department of Labor to make it more difficult for fiduciaries of retirement plans to direct money to ESG-focused funds.

The so-called ESG rule, or “Financial Factors in Selecting Plan Investments,” was the only Department of Labor rule listed for review by President Joe Biden’s transition team.

After the presidential election in November, Trump’s Department of Labor adjusted the Employee Retirement Income Security Act of 1974 to require those overseeing pension and 401(k) plans to always put economic interests ahead of so-called non-pecuniary goals, in a direct attack on environmental, social and governance investing. More than 130 fund management and financial advisory firms wrote letters opposing the plan after it had surfaced in June.

“We are very pleased that the Biden Administration recognized the ESG rule as flawed and in need of immediate review,” said Bryan McGannon, director of policy and programs at US SIF, a Washington-based group that supports sustainable investment businesses.

The DOL should clarify that ESG criteria is considered pecuniary and begin to re-write the rule, including allowing sustainable investments to be included in default plans, known as Qualified Default Investment Alternatives, McGannon said.

Investors have been increasing their bets on ESG, in part because they want to avoid polluters such as Big Oil. More than $22 billion flowed into ESG- and values-focused exchange-traded funds last year, easily exceeding the record of $9.2 billion set in 2019, data compiled by Bloomberg Intelligence show.

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