man crunching numbers at desk
(Credit: Stephen Zeigler / Getty Images)
Secretary of Labor Marty Walsh headshot
Secretary of Labor Marty Walsh

The Department of Labor announced Tuesday a final rule that lifts barriers to considering environmental, social and governance factors when selecting 401(k) plans. The rule allows fiduciaries to consider ESG when they select retirement funds and exercise shareholder rights, such as proxy voting.

The rule follows President Biden’s May 20, 2021, executive order directing the federal government to identify and assess policies to protect the life savings and pensions of America’s workers and families from the threats of climate-related financial risk, the agency said.

“In 2020, the previous administration issued regulations that had a strong chilling effect on the ability of workplace retirement plan managers to consider all appropriate information when making decisions about how to invest your retirement funds,” Labor Sec. Marty Walsh wrote in a blog post. “This means that they were sometimes stopped from making the best possible choices about how to protect your hard-earned savings.” 

Assistant Secretary for Employee Benefits Security Lisa M. Gomez said in a statement that the new rule “will make workers’ retirement savings and pensions more resilient by removing needless barriers and ending the chilling effect created by the prior administration on considering environmental, social and governance factors in investments.” 

The Labor Department solicited input from investment managers, labor organizations, corporate America, consumer groups, service providers, investment advisers and workers in its deliberations on the new rule, Walsh said.

The rule will be effective 60 days after its publication in the Federal Register, although fiduciaries and investment managers will be given additional time to prepare.