Legal Considerations
in Responsible Investment

On April 23, 2018, the U.S. Department of Labor released Field Assistance Bulletin (“FAB”) 2018-01 qualifying Interpretive Bulletins (“IB”) 2015-01 and 2016-01, which seemed to allow some latitude for fiduciaries to consider ESG factors in investment decision-making.

FAB 2018-01 directs that while under 2015-01 fiduciaries may properly consider economic considerations derived from ESG considerations, they “must not too readily treat ESG factors as economically relevant” and should focus their evaluations of investments on financial factors with material effects on return and risk.  Likewise, while ESG-driven funds may be added to the available investment options on a 401(k) plan platform, a fiduciary considering ESG factors in selecting a Qualified Default Investment Alternative (“QDIA”) would “raise questions about the fiduciary’s compliance with ERISA’s duty of loyalty.”

Similarly, where IB 2016-01 allows fiduciaries to include guidelines on ESG considerations in their investment policy statements, FAB 2018-01 clarifies that such guidelines are not obligatory and that fiduciaries managing plan assets are not always required to adhere to them. IB 2016-01 further allows fiduciaries to promulgate investment policies that contemplate that the fiduciary will engage in shareholder activities intended to monitor or influence a corporation’s management where the fiduciary reasonably believes these activities will enhance the value of the investment.  FAB 2018-01, however, clarifies that this language does not suggest that individual plan investors or plan fiduciaries, including investment managers, may incur significant expense to engage directly with management on environmental or social issues, and that such expenditure would likely warrant a documented cost-benefit analysis.

FAB 2018-01 thus circumscribes the latitude implied in IBs 2015-01 and 2016-01 for ERISA fiduciaries to consider ESG factors while remaining in compliance with their obligations under ERISA.