Biden scraps Trump’s roadblock for 401(k) investments in ESG

The Biden administration is scuttling rules put in place during the last days of Donald Trump’s presidency that many fund managers viewed as a direct attack on socially responsible investing.

A division of the Labor Department announced Wednesday that it wouldn’t enforce regulations approved last year by the Trump administration that required pension funds and 401(k) plans to place economic interests ahead of all other goals. The rules created a roadblock to pursuing what’s known as environmental, social and governance investments, or ESG. Such strategies are on the rise, with fund giants including BlackRock pledging to do more to fight climate change and promote diversity.

In a Wednesday statement, the Labor Department said it wouldn’t enforce the rules for fund investments or proxy voting, nor will it sanction retirement plans that don’t comply with the regulations.

“We intend to conduct significantly more stakeholder outreach to determine how to craft rules that better recognize the important role that environmental, social and governance integration can play,” Principal Deputy Assistant Secretary for the Employee Benefits Security Administration Ali Khawar said in the statement.

The prior administration’s rule, adopted in November, required retirement plan fiduciaries to select investments based solely on “pecuniary factors.” A similar restriction for voting proxies and shareholder rights followed in December.

Labor said in its Wednesday notice that asset managers, labor organizations, consumer groups, service providers and investment advisers have “asked whether these two final rules properly reflect the scope of fiduciaries’ duties.”

The comments also questioned whether the rules were made in a rush that failed to consider evidence that ESG considerations can improve long-term investment returns for retirement savers, Labor said.

Biden’s nominee for Labor secretary, Boston Mayor Marty Walsh, is still awaiting Senate confirmation.