PLANADVISER - November/December 2021 - 13

be slightly modified, but I think the main parts will stick, "
Hoeppner says. " Then, the real action happens when the
first major corporate defined contribution [DC] plan or
the first handful publicly change their default to an ESG
option-when you get the likes of a Disney or a Ford moving
in this direction. That will be a really big deal that could
drive significant momentum toward more universal use of
ESG investments within U.S. retirement plans. "
Good Timing
Julie Stapel, a partner in Morgan Lewis' ESG and sustainability
group, notes that the timing of the filing is meaningful.
In basic terms, the fact that this proposal has been
made relatively early in the Biden administration means it
will have much more time to actually be implemented and
to gain momentum compared with prior administrations'
efforts to change the rules in this area.
" My first impression is that, if finalized in something like
its draft form, it will be very helpful to fiduciaries who have
already started to go down this road toward embracing ESG
investing, " Stapel says. " I think plan fiduciaries, as represented
by the clients we work with, are at many different
places along this road, due to a variety of factors, but this
proposal will make their journey far easier and more secure. "
Beyond Climate Change
As Sarah Bratton Hughes, global head of sustainability solutions
at Schroders, explains, although climate change is
mentioned throughout the proposal's preamble as a major
potential risk affecting long-term returns, the DOL is clear
that material ESG factors can address much more than just
climate change. To this end, it included several examples.
Under the heading of " workforce practices, " for example, the
agency cites as potentially financially material a corporation's
progress on workforce diversity and its level of investment
in fostering positive labor relations. Under governance
factors, the DOL says, items such as board compensation
and transparency in corporate decisionmaking can be
important-as is a corporation's avoidance of criminal
liability and its compliance with labor, employment, environmental,
tax and other applicable laws.
Hoeppner, Stapel and Bratton Hughes all say the
proposal's " ESG tiebreaker " language is somewhat important.
Currently, collateral ESG factors may be considered
only as a tiebreaker where two competing investments are
economically indistinguishable. Moreover, the rules as they
exist today impose significant documentation provisions,
requiring investors to demonstrate that the tiebreaker was
used only in that limited context.
The proposed rule, on the other hand, would adopt a
more general principle. Under that language, when a fiduciary
concludes that two competing investment approaches
" equally serve the financial interest of the plan, " the fiduciary
could base an investment decision on " economic or
noneconomic benefits other than investment returns. "
Bratton Hughes says the Biden DOL seems to think the
special documentation requirements from the previous
rule create an impression that fiduciaries should be wary of
considering ESG factors, even when those factors are financially
material to the investment decision.
Potential Changes
A team of attorneys with The Wagner Law Group said in their
interpretation of the proposal that the details will be scrutinized
by different concerned parties in the coming months
and noted that public comments are due by December 13.
" Unlike the 2020 rule, this proposed revision of the
investment duties rule arguably creates more room for the
neutral exercise of fiduciary discretion with fewer regulatory
constraints, " the attorneys write. " Thus, it is likely not to
generate a wave of opposition as its predecessor did. "
-John Manganaro
talking points
ESG Growing Steadily
U.S. assets under management using
environmental, social and governance
strategies were $17.1 trillion at the start
of last year. That's a 42% increase from
$12 trillion at the start of 2018.
42%
$12.0 trillion
2018
$17.1 trillion
2020
Source: US SIF Foundation, " Report on US Sustainable and Impact
Investing Trends 2020 "
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PLANADVISER - November/December 2021

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