The Employee Benefits Security Administration (EBSA) has issued a field bulletin that — once again — reverses a position of the Obama administration, this time stating that fiduciaries of employee benefit plans may not sacrifice returns or assume greater risks to promote collateral environmental, social or corporate governance (ESG) policy goals when making investment decisions.

ebsa-clarifies-esg-investingField Assistance Bulletin (FAB) No. 2018-01, issued on April 23, clarifies fiduciaries’ responsibilities under the Employee Retirement Income Security Act (ERISA) and was sent to EBSA national and regional offices.

In 2015, the Obama EBSA issued a bulletin that “corrected a misperception that investments in ETIs are incompatible with ERISA’s fiduciary obligations,” thus greenlighting ESG investing.

This week’s FAB reverses that to the standard that existed pre-Obama.

The previous standard had been that fiduciaries may consider ESG factors only in cases of tiebreakers, but the 2015 bulletin stated that ESG considerations “may have a direct relationship to the economic and financial value of an investment. When they do, these factors are more than just tiebreakers, but rather are proper components of the fiduciary’s analysis of the economic and financial merits of competing investment choices.”

This week’s FAB turns that on its head:

It does not ineluctably follow from the fact that an investment promotes ESG factors, or that it arguably promotes positive general market trends or industry growth, that the investment is a prudent choice for retirement or other investors. Rather, ERISA fiduciaries must always put first the economic interests of the plan in providing retirement benefits. A fiduciary’s evaluation of the economics of an investment should be focused on financial factors that have a material effect on the return and risk of an investment based on appropriate investment horizons consistent with the plan’s articulated funding and investment objectives.

As for 401(k) plans, the bulletin leaves open the option to include an ESG fund among the options: “a prudently selected, well managed, and properly diversified ESG-themed investment alternative could be added to the available investment options on a 401(k) plan platform without requiring the plan to remove or forgo adding other non-ESG-themed investment options to the platform.”