Labor Benefits Chief Pledges Enforcement Focus on ESG in 401(k)s

The Department of Labor’s employee benefits agency will prioritize enforcement actions on plan managers who focus on socially-conscious investing or diversity, equity, and inclusion initiatives, its top official said Friday.

Daniel Aronowitz, head of DOL’s Employee Benefits Security Administration, said the agency would crack down on firms that act in bad faith to “misappropriate assets” in order to “enrich themselves or to pursue other purposes collateral to the provision of benefits to the American worker,” at a Washington DC conference focused on employee stock ownership plans.

“This would include disloyal pursuits of ESG or its sister acronym DEI,” he said. “To be clear, EBSA is focused on true bad actors. Criminals will be punished.”

Aronowitz, who took over in November, emphasized EBSA’s work to expand 401(k) investment options and reduce litigation exposure for benefits plans.

The Trump administration has moved to crack down on DEI efforts in the private sector. EBSA has adopted this posture towards investments focused on environmental, social and governance causes and is currently rewriting a Biden-era regulation that made it easier to include green investments on 401(k) plan menus.

Trump has also ordered EBSA to revise its retirement plan fiduciary rules to tighten restrictions on proxy advisers, saying in an executive order last year they must act solely in the interests of plan participants and not be politically motivated. EBSA put out technical guidance in April confirming that proxy advisers, which have at times taken pro-ESG and DEI stances, can in fact be fiduciaries under the Employee Retirement Income Security Act.

Arguments that ESG and diversity considerations violate ERISA duties of loyalty or prudence are also making their way into private litigation. A Texas federal judge found last year that American Airlines Inc. acted disloyally by favoring ESG objectives in its 401(k) plan through investment manager BlackRock Inc.