President Joe Biden issued executive orders in 2021 establishing a government-wide approach to climate-related financial risks. In response, the Employee Benefits Security Administration (EBSA), the employee benefits division of the U.S. Department of Labor (DOL), requested public comments in February 2022 on specific actions to protect workers’ retirement savings from financial risks related to climate change. Comments were due no later than May 16, 2022.
EBSA received over 130 comments, many from retirement industry groups, which echoed concerns raised by sponsors of employee benefit plans regulated by the Employee Retirement Income Security Act (ERISA). Both groups expressed frustration with EBSA’s action on environmental, social, and governmental (ESG) issues and the potential for these issues to place more burdens on plan sponsors. The comments reflect that receiving clarity and guidance from DOL on whether ESG issues can be material to ERISA fiduciary decision-making would be helpful. Still, the overall reaction to EBSA’s request for comments was negative.
There are four major takeaways from EBSA’s collection of public comments on its potential responses to climate-related financial risks.
- EBSA Has Not Committed to Any Rulemaking
Despite its request for comments, EBSA has not committed to any rulemaking on this issue in the future. Several industry groups expressed major concerns about EBSA rulemaking that potentially would unduly burden and interfere with the administration of retirement plans.
- Plan Fiduciaries Concerned About Solely Focusing on Climate Risk
The focus of regulators on any single issue, such as climate-related risks, raises important questions for ERISA plan sponsors, as their fiduciary duty under ERISA requires them to reduce overall risk. Placing more emphasis on climate-related financial risk over other risk factors could jeopardize the performance of their fiduciary duty under ERISA.
- Financial Industry Groups Urge EBSA to Limit Regulations to ERISA and Coordinate with SEC
Financial industry groups opined that to the extent EBSA does take any regulatory action on climate risk, it should focus on ERISA and coordinate with the U.S. Securities and Exchange Commission (SEC), which recently proposed new rules on climate risk disclosure for public companies. The U.S. Chamber of Commerce also maintained that EBSA had no authority to require additional reporting requirements of plans.
- ESG Rules Face Similar Opposition by Industry Groups
EBSA noted in its February RFI that public comments on its October 2021 proposal on ESG considerations in selecting retirement plan investments had closed. Many groups related their opposition to singling out climate change back to their opposition to the ESG proposal. For example, ERIC, the large plan sponsor, told EBSA that it was “impossible” to separate the two actions Supporters of the ESG proposal also reiterated their support in their comments in response to the February RFI.