Managed Funds Association (MFA), which represents the global hedge fund and alternative investment industry has responded positively to the Department of Labor’s proposed rule regarding the application of the fiduciary duties of prudence and loyalty in selecting plan investments and exercising shareholder rights.
MFA is supportive of the DOL’s efforts to remove barriers to plan fiduciaries’ ability to consider ESG factors when selecting investments and exercising shareholder rights:
“MFA supports the DOL’s clarification of an ERISA fiduciary’s duty of prudence and loyalty in this context, and the elimination of certain modifications to the Investment Duties regulation adopted in 2020, which we believe may have resulted in significant chilling effects on the selection by ERISA fiduciaries of the many investment strategies and products that incorporate ESG considerations into their investment analyses, as well as the imposition of substantial compliance costs to justify and document the fiduciary’s determination of whether and how to vote proxies.”
However, MFA has also highlighted concerns that the rule’s text could be misinterpreted to mean that the consideration of ESG factors would be mandatory:
“We believe, as a result, that many ERISA fiduciaries would feel compelled to consider ESG matters or incur substantial compliance costs to justify and document their justifications for why such considerations are not required.
“Relatedly, we believe that expressly including three categories of permissible ESG considerations—climate change-related factors, governance factors and workforce practices—in the rule text would likely lead ERISA fiduciaries to conclude that consideration of those categories are effectively mandatory.”