Over the objections of money managers and other financial industry players, the White House is going ahead with a rule that would limit the degree to which retirement plans can consider environmental, social and governance (ESG) factors when making investment decisions, reported Bloomberg. After first proposing the rule in June, the Department of Labor (DOL) has submitted the final version to the White House for approval.

The rules, essentially, say that Employee Retirement Income Security Act (ERISA) plan fiduciaries may not invest in ESG vehicles when they understand that an underlying investment strategy of the vehicle is to subordinate return or increase risk for the purpose of nonfinancial objectives, and so they cannot subordinate the interests of plan participants and beneficiaries in retirement income and financial benefits to "non-pecuniary" goals.

ESG factors can be considered only if they present economic risks or opportunities that qualified investment professionals would treat as material economic considerations under generally accepted investment theories through new required investment analysis and documentation requirements in what the DOL said are "the rare circumstances when fiduciaries are choosing between truly economically 'indistinguishable' investments."

Bloomberg said that such circumstances are not as rare as the White House seems to believe, as serious investors have increasingly been giving thought to how nonfinancial factors such as environmental sustainability play into their risk models. It said that the rule will very likely be challenged in court, at least partially due to the very short time frame in which it went from proposal to final rule. Bloomberg noted that a similar change in retirement plan regulations was recently overturned in court due to the department speeding them through the public comment period.