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DOL Adopts Final Rule on ESG Investing

The Department of Labor (DOL) has adopted a final rule which requires that fiduciaries select investments based on only risk and return characteristics and not environmental or social issues. Investments must be selected based on “pecuniary” factors – that is, factors that a fiduciary prudently determines “to have a material effect on the risk and return based on appropriate investment guideline(s).” Funds that are oriented to environmental or social issues would only be permissible if investment managers document “how the strategy benefits the core risk-and-return” objective. Particular to utilization of such investments as Qualified Default Investment Alternatives (QDIAs), the final rule excludes funds from consideration if “its investment objectives, goals or principal investment strategy include or consider the use of one or more non-pecuniary factors.” The rule becomes effective 60 days after publication in the Federal Register. Plans will have until April 30, 2022 to make any necessary changes to QDIA designations to comply with the final rule. There is some speculation that the timing of this ruling was due to the upcoming election, and that election results could be possibly trigger a reversal.; October 30,2020.; October 30, 2020.