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Labor Department Extends ESG Inquiries… to RIAs

Regulatory Compliance

It seems that the Labor Department is doubling down on its ESG information request campaign, now looking to the practices behind investments in, and monitoring of, ESG-themed ERISA plan investments by Registered Investment Advisory firms.

Earlier this year information requests had been sent to a number of plan sponsors, making inquiries regarding “…environmental, social, and governance (ESG) themed funds in its investment options.” Those letters—which made a series of specific, pointed requests for information regarding ESG investments made by the plan in question—stated that “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.” 

Those information requests—and it’s important to note that this was not the customary DOL document subpoena—were later explained by Labor Department officials as part of an intent to better understand both how plan fiduciaries are selecting these funds, and how they are reviewing and evaluating those options, including the promotional materials that tout the reasons a plan sponsor should select an ESG fund in the fund lineup. 

Those letters and that follow-up conversation preceded the issuance of a proposed rule in June by the Labor Department widely seen as designed to dampen enthusiasm for ESG investments by ERISA plans—one that has since received more than 1,500 comments during the 30 day comment period following issuance of the proposal, many harshly critical. Asked at the time about the plan sponsor ESG information outreach campaign in May and the timing of the proposal, senior Labor Department officials said the two were “separate, unrelated” initiatives. 

But with that proposal out, including a number of conclusions about the appropriateness of ESG considerations in ERISA plan investment options, the Labor Department has now apparently extended their quest for information regarding these options with an information request campaign targeted at Registered Investment Advisor (RIA) firms.

First reported by Financial Advisor  and now independently confirmed by us, the information requests—not enforcement letters as has been reported—appear quite similar in tone and focus to those sent to plan sponsors in May. The letters—dated in late July—contain about a dozen specific, detailed requests for information that goes back a number of years—and indicate—as did the plan sponsor letters—a relatively short deadline for response.  

All of which brings to mind a couple of questions. First, why the Labor Department didn’t conduct/conclude this information request campaign before issuing its proposal. And secondly, considering that it’s merely an information request, how organizations that receive such a request should respond. 

The latter, of course, is a matter for the organization(s) and legal counsel.