DOL Final Regulations on ESG Investing: “It’s All ‘Bout the Money”

Whether it is appropriate for institutional investment decision-makers to take into account environmental, social, or governance (“ESG”) factors or invest to promote ESG objectives, has become a divisive political issue and a frequent topic in the popular press. For example, the state of Florida recently announced that it would divest $2 billion of state assets managed by BlackRock in opposition to BlackRock’s ESG policies. The ERISA plan fiduciaries responsible for investing plan assets or selecting the investment choices available to plan participants (e.g., in 401(k) or 403(b) plans) may also want to – or be asked by interested parties (management, unions, participants, etc.) – to consider ESG factors in their decision making.

The U.S. Department of Labor has periodically issued guidance on how an ERISA plan fiduciary’s consideration of non-financial factors (including ESG factors) impacts compliance with ERISA’s fiduciary duties of loyalty and prudence (most recently, a 2015 Interpretive Bulletin, a 2018 Field Assistance Bulletin, 2020 proposed and final regulations, and 2021 proposed regulations). The DOL’s position during this period has not surprisingly reflected the political views of the administration in office at the time, with the different guidance ranging from promoting an appropriate consideration of non-monetary factors, to strictly allowing non-monetary factors to be a tie-breaker for otherwise equal investments, to discouraging consideration of non-monetary factors. On November 22, 2022, the DOL issued new final regulations addressing fiduciary obligations when selecting ERISA plan investments. The final regulations make it clear that a fiduciary’s principal obligation when investing plan assets is to focus on factors relevant to an investment’s risk and return characteristics and that this can include ESG and other non-monetary factors.

Primary Principle

The final regulations restate a long-standing principle that a fiduciary satisfies its fiduciary duty of prudence if the fiduciary gives appropriate consideration to the facts and circumstances that the fiduciary knows or should know are relevant to the particular investment involved, including the role the investment plays in the portion of the plan’s investment portfolio or menu over which the fiduciary has investment duties. For this purpose, the regulations provide that “appropriate consideration” involves a comparison of investment options. Specifically, it means that the fiduciary’s determination that the investment or investment course of action is reasonably designed, as part of the plan’s portfolio (or portion of the portfolio over which the fiduciary has investment duties) or menu, to further the purposes of the plan, taking into consideration the risk of loss and the opportunity for gain (or other return) associated with the investment or investment course of action compared to the opportunity for gain (or other return) associated with reasonably available alternatives with similar risks.

Non-Monetary Considerations

The final regulations make it clear that non-monetary factors such as ESG may be considered but risk and return considerations remain primary.

  • A fiduciary’s investment determination must be based on factors that the fiduciary reasonably determines are relevant to a risk and return analysis. These may include the economic effects of climate change and other ESG factors on the particular investment. Whether any particular consideration is a risk-return factor depends on the individual facts and circumstances. The weight a fiduciary gives to any factor should appropriately reflect a reasonable assessment of its impact on risk-return.
  • A fiduciary may not subordinate the plan investment or retirement income interests of the participants and beneficiaries to other objectives, and may not sacrifice investment return or take on additional investment risk to promote benefits or goals unrelated to interests of the participants and beneficiaries in their retirement income or financial benefits under the plan.
  • The regulations include a tie-breaker provision. If a fiduciary prudently concludes that competing investments, or investment courses of action, equally serve the financial interests of the plan over the appropriate time horizon, the fiduciary is not prohibited from selecting the investment, or investment course of action, based on collateral benefits other than investment returns. A fiduciary may not, however, accept expected reduced returns or greater risks to secure these collateral benefits. This tie-breaker provision is more flexible that a similar provision in the prior final regulations which prohibited a fiduciary from considering non-monetary factors unless the choices being compared were economically indistinguishable.
  • A fiduciary of a participant-directed individual account plan (e.g., 401(k) plan) does not violate ERISA’s duty of loyalty solely because the fiduciary takes into account participants’ preferences in a manner consistent with ERISA’s general duty of prudence.


The final regulations are clear – a fiduciary is obligated to take relevant risks and return factors into consideration when making plan investment decisions, and no other interest is more important. ESG and other non-monetary factors can be taken into account, but only as part of their potential impact on risk and return of the investment. Fiduciaries should be very careful in documenting any evaluation of non-monetary considerations so that it is clear the non-monetary factors were analyzed for their impact on risk and return. Ultimately, fiduciary investment decisions have a direct impact on the amounts participants in defined contribution plans will have available to them in their retirement years and on an employer’s contribution obligations in a defined benefit plan. The takeaway for plan fiduciaries: it’s still all about the money.

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About the Author:

Jordan Schreier is a Member in Dickinson Wright’s Ann Arbor office and Chair of the Firm’s Employee Benefits & Executive Compensation Practice Group. His practice primarily involves advising both for-profit and non-profit employers on planning and compliance issues involving all aspects of employee benefits, including welfare benefits, qualified retirement, and other deferred compensation plans. He frequently represents employers in connection with multiemployer fringe benefit fund issues. He also serves as legal counsel to many 401(k) and pension investment and administrative committees. He can be reached at 734-623-1945 or and you can visit his bio here.