Regulatory Outreach for Student Education

Engaging Students in the Debate Over Financial Services Reform

Today’s debate over regulatory reform is a watershed activity in the careers of financial industry professionals. Years ago, similar debates over mandated pre-funding of pension liabilities (ERISA) and the reunification of investment banking with commercial banking (Glass Steagall's repeal) changed the direction of financial market evolution. Opinions may differ on the merits of those changes, but no one disputes their significance.

Without question, college students and young professionals should be well-versed in the issues involved in today's debate. The Regulatory Outreach for Student Education (ROSE) program is the Center's way to give top students, tomorrow's business and finance leaders, opportunities to experience the financial regulatory process up-close.  The ROSE program is designed to put students in touch with the regulators, policy-makers, and industry leaders who are currently shaping the financial regulatory landscape.  We then challenge them to research and articulate their own positions on the most intriguing and interesting issues.  

ROSE Program Blog

Thursday, October 14, 2021

DOL to Reverse Rules "Chilling" ESG Investing and Proxy Voting

Author: David Schwartz J.D. CPA

The U.S. Labor Department (DOL) has proposed regulations that would greatly expand how retirement and pension plans can invest in ESG strategies and clarify the scope of ERISA plans' responsibility for proxy voting. If adopted, the DOL's proposal, drafted by the Employee Benefits Security Administration (EBSA), will reverse the former administration's regulations on ESG factors in retirement portfolios and ERISA fiduciaries' use of proxy voting powers in favor of social or political goals. 


In March, in compliance with an executive order from the new Biden administration, the EBSA said it would not enforce either Trump-era rule and announced that it had begun a reexamination of the current regulation.[1] The Trump-era rules imposed a duty on sponsors of ERISA retirement plans to apply a narrow interpretation of the fiduciary duties of prudence under ERISA when considering plan investments that promote nonfinancial objectives, such as ESG factors. This guidance was clearly intended to target ESG investing, and numerous commenters said it would have "a chilling effect" on ESG investing by ERISA plans. The text of the proposal echos these concerns:

"Many stakeholders questioned whether the Department rushed the current regulation unnecessarily and failed to adequately consider and address substantial evidence submitted by public commenters suggesting that the use of climate change and other ESG factors can improve investment value and long-term investment returns for retirement investors."

 "many stakeholders have indicated that the rules have been interpreted as putting a thumb on the scale against the consideration of ESG factors, even when those factors are financially material."[2]


The most current proposal seeks to clarify that ESG factors can be financially material and may be considered by plan sponsors when making investment decisions on behalf of plan participants.


Proxy Voting


Other rules from the previous administration barred ERISA plan fiduciaries from casting proxy votes in favor of social or political positions that do not directly affect the financial interests of retirement plan participants. The Trump-era rules made it difficult to make careful, informed proxy voting decisions on ESG-related items on behalf of plans and plan participants. The ESBA's proposal would eliminate the bias that the previous administration's rules created in favor of not voting proxies


The DOL's proposal was published in the Federal Register on October 14, 2021, and will be open for a 60-day comment period.




[1] On January 20, 2021, the President signed Executive Order 13990 (E.O. 13990), which directed the DOL to consider publishing, by September 2021, for notice and comment a proposed rule to suspend, revise, or rescind the rules and guidance to ERISA plan fiduciaries under the previous administration [i.e., "Financial Factors in Selecting Plan Investments," 85 FR 72846 (November 13, 2020), and "Fiduciary Duties Regarding Proxy Voting and Shareholder Rights," 85 FR 81658 (December 16, 2020).]

On March 10, 2021, the Department announced that it had begun a reexamination of the current regulation, consistent with E.O. 13990 and the Administrative Procedure Act.


[2] 86 FR 57275,