DOL Provides Enforcement Policy Statement Regarding The Recent Final Regulations on ESG Investments and Proxy Voting

March 16, 2021

On March 10, 2021, the U.S. Department of Labor (DOL) announced an enforcement policy statement for the prior administration’s regulations regarding “Financial Factors in Selecting Plan Investments” (85 Fed. Reg. 72846 (Nov. 13, 2020)), otherwise commonly referred to as the ESG regulation, and “Fiduciary Duties Regarding Proxy Voting and Shareholder Rights” (85 Fed. Reg. 81658 (Dec. 16, 2020)).

Under this enforcement policy statement, the DOL will not enforce either of the final regulations nor otherwise pursue enforcement actions based on any failure to comply with those regulations in respect of an investment (including a Qualified Default Investment Alternative (QDIA)), an investment course of action or the exercise of shareholder rights.  The DOL noted, however, that the enforcement policy regarding the new regulations does not preclude enforcement of statutory requirements such as the duties of prudence and loyalty set forth in Section 404 of the Employee Retirement Income Security Act of 1974, as amended (ERISA).  Furthermore, the DOL’s non-enforcement policy does not preclude litigation by private plaintiffs (e.g., plan fiduciaries or participants).

Based on this non-enforcement policy, clients may consider forgoing making changes to their investment or proxy voting procedures and/or policies that may have been required by the prior administration’s regulations pending further guidance from the DOL.

The policy will remain effective until further guidance is published.  In its statement, the DOL indicated that it intends to revisit both of these regulations.  The rulemaking process required to revise the current regulations or enact new regulations can take a substantial amount of time; however, the DOL noted that there may be sub-regulatory guidance provided prior to the applicability date of any revised regulations.

For further information regarding this enforcement policy statement, please contact S. John Ryan at (212) 574-1679, Michael O’Brien at (212) 574-1505, or Bradley Fay at (212) 574-1429.  For further information regarding each of these regulations, see our recent memo “The Department of Labor (DOL) Finalizes Two ERISA Fiduciary Regulations Before the Change in Administrations”.