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Are ESG Options Oversold?

Regulatory Agencies

Inquiries from the Employee Benefit Security Administration regarding plan investments in ESG options are a national focus—motivated by concerns about how those options are being promoted. 

Earlier this week we reported that a letter from the New York Regional Office of the Employee Benefit Security Administration was seeking a long list of information from plans with ESG funds, specifically the selection and review process for those options. 

Conversations with senior Labor Department officials have now confirmed that this outreach is part of a national focus, rather than one limited to the New York Office.  The officials said they are seeking to better understand both how plan fiduciaries are selecting these funds, and how they are reviewing and evaluating those options. Of particular interest may be the promotional materials that tout the reasons a plan sponsor should select an ESG fund in the fund lineup. 

All of which seems to suggest that there are concerns that those touting ESG investments may be conveying a sense that standards beyond—and perhaps below—ERISA’s exclusive benefit admonitions are appropriate for ESG.   

However, as the EBSA information request states, “the Department seeks to better understand the Plan fiduciaries’ selection of ESG funds for inclusion in the Plan’s investment options and compliance with their duty to administer the Plan prudently and solely for the purpose of providing benefits to participants and beneficiaries, and defraying reasonable expenses of administering the Plan.”   

In case there was any doubt…