The Latest Word on ESG

Benefits and executive compensation partner Fred Reish and counsel Joan Neri coauthored an article for PlanAdviser titled “The Latest Word on ESG.” Their article answers a question from a registered investment adviser (RIA) who advises 401(k) plan committees and asks what a RIA’s fiduciary obligations are with respect to the selection of environmental, social and governance (ESG) funds.

The article discusses the Department of Labor (DOL)’s recently issued final regulation that explains ESG funds must be evaluated based solely on pecuniary factors—i.e., factors that are expected to have a material effect on risk and/or return. The authors detail how advisers can examine information about ESG funds to determine whether the ESG factors are used for pecuniary purposes (i.e., to improve risk and/or return) or for non-pecuniary purposes (i.e., to promote social or political outcomes).

The authors also highlight that the DOL’s regulation rule may change under the Biden administration.