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EBSA Drops Off ESG, Proxy Voting Response at OMB

Regulatory Agencies

The Employee Benefit Security Administration has dropped off documents at the Office of Management and Budget (OMB) in response to two Executive Orders from President Biden.

The submission is titled “Implementing Executive Orders 13990 and 14030.” The former is an Executive Order from President Biden directing federal agencies to review existing regulations “promulgated, issued, or adopted between January 20, 2017, and January 20, 2021, that are or may be inconsistent with, or present obstacles to…” the “promotion and protection of public health and the environment and ensuring that agency activities are guided by the best science and protected by processes that ensure the integrity of Federal decision-making, and to advance consistent, clear, intelligible, comparable, and accurate disclosure of climate-related financial risk, including both physical and transition risks.” The latter is an Executive Order issued in May that directed the Secretary of Labor to consider publishing, by September 2021, for notice and comment a proposed rule to suspend, revise or rescind “Financial Factors in Selecting Plan Investments” (a.k.a. the ESG rule) and “Fiduciary Duties Regarding Proxy Voting and Shareholder Rights.” 

The move has been widely expected. In mid-March the EBSA had already announced that it would not enforce the final rules on and Fiduciary Duties Regarding Proxy Voting and Shareholder Rights.

What’s not clear at this point is whether this delivery at OMB is simply the response to the request to review the rules or the proposed rules themselves. The delivery is noted as not being economically significant, while the final ESG rule issued last November was flagged as being economically significant. And in Section 4 of EO 14030, as described above, DOL is instructed to consider publishing an NPRM by September 2021. 

Speaking July 27 at the 2021 NAPA D.C. Fly-In Forum, EBSA Acting Assistant Secretary Ali Khawar indicated the agency was working toward a goal of issuing rules in September covering both proxy voting and ESG issues. 

As for what set all this in motion, on Nov. 13, 2020, the DOL under the Trump Administration published a final rule on Financial Factors in Selecting Plan Investments, which adopted amendments to the “Investment Duties” regulation under Title I of ERISA. The changes stepped away from using the terms environmental, social and governance (ESG) factors, but instead generally require plan fiduciaries to select investments and investment courses of action based solely on consideration of “pecuniary factors.” 

Then, on Dec. 16, 2020, the DOL published a final rule on Fiduciary Duties Regarding Proxy Voting and Shareholder Rights, which also adopted amendments to the Investment Duties regulation to address obligations of plan fiduciaries under ERISA when voting proxies and exercising other shareholder rights in connection with plan investments in shares of stock.

Stay tuned.

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