The U.S. Department of Labor (“DOL”) released a final rule on December 1, 2022, covering the investment duties of fiduciaries under the Employee Retirement Income Security Act of 1974 (ERISA)—commonly known as the “ESG Rule”. This regulatory update has brought to light anew the proxy voting requirements and their consequential impact on Plan Asset Managers. These managers operate pooled investment vehicles, often regarded as holding “plan assets” under ERISA code; thus, the new rules have significant implications for their roles.
As detailed by Vedder Price, the ESG Rule’s specific requirement on proxy voting is particularly noteworthy. With its enforcement, Plan Asset Managers find themselves assigned with more responsibility and, subsequently, a higher standard of adherence to the DOL’s regulations.
The rule is not without a transition period—Managers of Plan Asset Funds need to ensure full compliance by December 1, 2023. Some of the duties the ESG Rule clarifies include the application of prudence and loyalty in carrying out investment duties, taking into account environmental, social, and governance factors (hence the ESG epithet), and promoting voter-shareholder interests.
The ESG Rule shows continued federal agency focus on the role of proxy voting within ERISA fiduciary duties, while also reflecting the increased attention given to ESG investing in recent years. The impending enforcement of the rule brings an essential message to Plan Asset Managers—prepare adequately to meet these newly stated fiduciary responsibilities.