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The Biden administration said Wednesday it will not implement a rule of the Trump administration that makes it more difficult to present environmental, social and government or ESG funds in 401 (k) plans.
ESG funds can, for example, invest in energy companies that are not dependent on fossil fuels, or in companies that promote racial and gender diversity. Investors poured a record $ 51 billion into ESG funds last year.
The Trump-era reign, issued in 2020, does not explicitly proclaim ESG funds or explicitly prohibit them in 401 (k) plans.
According to experts, however, it could already make a bad use of it by changing the requirements for employers to choose it as a 401 (k) investment.
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Indeed, the rule has already had a cold effect on its inclusion, even in circumstances where the rules are explicitly allowed to be used, Biden’s Department of Labor said Wednesday.
“Consequently, the department intends to revisit the rules,” the agency said. Such an action could lead to an eventual setback or rewrite.
Until such guidance is issued, the Biden Labor Bureau will not enforce Trump-era rules, the department said.
The position of the Biden Labor Bureau was guided by input from stakeholders such as asset managers, labor organizations, planners, consumer groups, service providers and investment advisers, the agency said.
Trump ESG rules
The Trump era requires employers – who make decisions about 401 (k) investments – to consider only factors such as the risk and return of a fund (rather than characteristics such as social or environmental value) when making 401 (k) funds choose. Otherwise, employers could provoke more legal scrutiny.
The Labor Department also explicitly allowed employers to automatically enroll workers in an ESG-focused fund. Automatic enrollment has become an increasingly popular way to invest workers in a 401 (k).
The Labor Bureau is revisiting the Trump-era rule according to an executive order issued by Biden in January, entitled “Protect Public Health and the Environment and Restoring Science to Tackle the Climate Crisis.”
That order requires federal agencies to review the regulations issued between January 2017 and 2021, “which are inconsistent with or may be inconsistent with or obstacles to” environmental and climate administration policies. In such cases, agencies may suspend, review or revoke the rules, according to the Labor Department.