cancel
Showing results for 
Search instead for 
Did you mean: 
     
Highlighted
Frequent Contributor

DOL Rules Will Make ESG Funds Harder in 401k/403b

https://www.bloomberg.com/amp/news/articles/2020-06-25/trump-administration-targets-esg-funds-with-p...

.....On June 23, the Labor Department led by Secretary Eugene Scalia proposed an update to the Employee Retirement Income Security Act of 1974 (ERISA) that would require those overseeing pension and 401(k) plans to always put economic interests ahead of “non-pecuniary” goals. The agency specifically called out ESG investing in its proposal.

“After years of the Department of Labor having varying degrees of guidelines about if you can consider ESG factors, they are coming out definitively to say it’s not appropriate to consider,” said attorney Josh Lichtenstein, a partner in Ropes & Gray’s ERISA practice. That means that fiduciaries of pension and 401(k) plans could be forced to prove they selected investments based only on economic criteria. “This could actually make it harder for a fund that is advertising as an ESG fund to be selected by these types of plans, even when the selection is truly based on investment performance,” Lichtenstein said.....

More - DOL says private-equity is OK, but ESG is not. https://www.financial-planning.com/news/department-of-labor-guidance-on-retirement-plans-celebrates-...

YBB
0 Kudos
19 Replies
Highlighted
Explorer ○○

Re: DOL Rules Will Make ESG Funds Harder in 401k/403b

If the proposed change is implemented, and stays implemented (a big "if"), I suspect that the manager of an ESG fund will be able to get around it simply by changing the description of the fund so as to replace any language to the effect that the intention is to "subordinate return or increase risk for the purpose of non-financial objectives" with language saying that the fund's strategy is based on the (seemingly defensible) view that consumers and investors are increasingly preferring companies that subscribe to ESG. 

0 Kudos
Highlighted
Frequent Contributor

Re: DOL Rules Will Make ESG Funds Harder in 401k/403b

ESG is so nebulous.

I don't look to my investments for virtue.

Bob

0 Kudos
Highlighted
Explorer ○○

Re: DOL Rules Will Make ESG Funds Harder in 401k/403b

@GLI2019  I don't either, but finally bought one in March, on the theory that other investors increasingly do!

0 Kudos
Highlighted
Frequent Contributor

Re: DOL Rules Will Make ESG Funds Harder in 401k/403b

Hope it works for you, Tibbles.

Bob

0 Kudos
Highlighted
Frequent Contributor

Re: DOL Rules Will Make ESG Funds Harder in 401k/403b


@GLI2019 wrote:

ESG is so nebulous.

I don't look to my investments for virtue.

Bob


You're right. Virtue signaling is what sells those funds. Here's a notice I just received on the proposed DOL policy change

“Private employer-sponsored retirement plans are not vehicles for furthering social goals or policy objectives that are not in the financial interest of the plan,” Scalia says. “Rather, ERISA plans should be managed with unwavering focus on a single, very important social goal—providing for the retirement security of American workers.”

The underlying problem is employee education. On the surface, as is the case with so many things sold on appearance, it seems right and proper to exclude from one's 401(k) the stock of any company who sells products or services that may cause illness or injury or are simply undesirable for socially acceptable behavior, whatever that might be. 'But stop and think' I have mentioned to some family members who take this view. Holding or not holding PM stock has absolutely NOTHING to do with PM's profitability. Buying or advocating others NOT buy PM's products will do that.

BruceM

Highlighted
Explorer ○○○

Re: DOL Rules Will Make ESG Funds Harder in 401k/403b

401K Funds should be forced to invest only in TOTAL MARKET INDEX funds so there is no conflict.

I have Fidelity brokeragelink in my 401K so I invest on my own in investments I like, 

0 Kudos
Highlighted
Frequent Contributor

Re: DOL Rules Will Make ESG Funds Harder in 401k/403b

As expected,   https://www.ft.com/content/abfa7a6f-79e3-4abd-9aee-93d99384ef36

"Asset managers are gearing up for a battle with the Trump administration over a new proposal that threatens investors’ ability to incorporate environmental, social and governance principles into pension portfolios......Late last month, the Department of Labor proposed a new rule that would require private pension administrators to prove that they are not sacrificing financial returns if they put money in ESG-oriented investments.....Nuveen [Edit: that is TIAA] and Morningstar are drafting critical responses to the proposal. The UN Principles for Responsible Investing, which has signed up nearly 2,300 investment managers, has also come out against the rule....."

YBB
0 Kudos
Highlighted
Frequent Contributor

Re: DOL Rules Will Make ESG Funds Harder in 401k/403b

"Asset managers are gearing up for a battle with the Trump administration over a new proposal that threatens investors’ ability to incorporate environmental, social and governance principles into pension portfolios"

I've been following this. Not sure why the DOL is so hot to force this on retirement fund investment managers. I understand why they're doing it, but why mandate a fund inclusion threshold? If employees wish to use their investments first as a symbol of signaling their virtue and second as a savings vehicle for future retirement, let them. The mere fact the ESG fund shows crappy performance and are expensive....so what....its the employee's money.

BruceM

Highlighted
Participant ○○

Re: DOL Rules Will Make ESG Funds Harder in 401k/403b

Are they mutually exclusive?

 

0 Kudos
Highlighted
Frequent Contributor

Re: DOL Rules Will Make ESG Funds Harder in 401k/403b

Crappy performance and high expenses are not NOT mutually exclusive.  In fact, they tend to go hand in glove.

Bob

Highlighted
Explorer ○○

Re: DOL Rules Will Make ESG Funds Harder in 401k/403b

John Hale’s M* column of July 23 makes it pretty clear that the ulterior motive of the DOL Rule is to prop up the fading fossil fuel industry. The column also demolished the arguments that ESG investing results in poor performance, and that it is primarily driven by a quest for “virtue,” the knee-jerk reaction of some of the posters here. 

https://www.morningstar.com/articles/992908/trumps-labor-department-really-doesnt-want-you-to-have-e...

Highlighted
Contributor ○○

Re: DOL Rules Will Make ESG Funds Harder in 401k/403b

I don't invest in ESG funds, but as long as they are clearly labeled, the choice should be left up to the individual investor. Funny that Trump thinks the Government needs to step in and protect investors here.

0 Kudos
Highlighted
Participant ○○

Re: DOL Rules Will Make ESG Funds Harder in 401k/403b


@GratefulNW wrote:

John Hale’s M* column of July 23 makes it pretty clear that the ulterior motive of the DOL Rule is to prop up the fading fossil fuel industry. The column also demolished the arguments that ESG investing results in poor performance, and that it is primarily driven by a quest for “virtue,” the knee-jerk reaction of some of the posters here. 

https://www.morningstar.com/articles/992908/trumps-labor-department-really-doesnt-want-you-to-have-e...


Yes, it's pretty clear what's going on here. Shameful. Still, investors can use the ignore administration button, just as jurisdictions did with the Paris climate accord.

0 Kudos
Highlighted
Participant ○○

Re: DOL Rules Will Make ESG Funds Harder in 401k/403b

Good on Morningstar to follow this story. Kudos.

0 Kudos
Highlighted
Frequent Contributor

Re: DOL Rules Will Make ESG Funds Harder in 401k/403b

@GratefulNW"John Hale’s M* column of July 23 makes it pretty clear that the ulterior motive of the DOL Rule is to prop up the fading fossil fuel industry"

As I said above, the holding or not-holding of a company's stock has absolutely NOTHING to do with its profitability and therefore its return on investment. The consumer demand for what the company makes or the services it provides determines profitability, not who holds the stock.

Not sure why that is such a difficult concept to grasp.

Now, were the ESG company a micro-micro locally traded penny stock, then yes, creating a market for its stock would get it the 'opportunity' to raise capital by being able to sell its stock to ESG funds and with the new found funding, go forth and compete in the marketplace. Great!

BruceM

Highlighted
Frequent Contributor

Re: DOL Rules Will Make ESG Funds Harder in 401k/403b


@BruceM wrote:

@GratefulNW"John Hale’s M* column of July 23 makes it pretty clear that the ulterior motive of the DOL Rule is to prop up the fading fossil fuel industry"

As I said above, the holding or not-holding of a company's stock has absolutely NOTHING to do with its profitability and therefore its return on investment. The consumer demand for what the company makes or the services it provides determines profitability, not who holds the stock.

Not sure why that is such a difficult concept to grasp.

Now, were the ESG company a micro-micro locally traded penny stock, then yes, creating a market for its stock would get it the 'opportunity' to raise capital by being able to sell its stock to ESG funds and with the new found funding, go forth and compete in the marketplace. Great!

BruceM


John Hale is too clueless to understand that there cannot be a global economic recovery without a dramatic increase in the use of fossil fuels because global economies cannot grow without the use of fossil fuels. Most developing countries that have decreased their poverty rates have increased rates of carbon emissions. 15% of the earths population 1.2 B, do not have electricity and all of the emerging market countries have pledged to provide electricity to their residents for which fossil fuels are the only affordable source of power. I can sit on my shares of CVX yielding a 6% qualifed dividend while I wait for the global economic recovery.

 

Highlighted
Frequent Contributor

Re: DOL Rules Will Make ESG Funds Harder in 401k/403b

M* analysis of public comments on the proposal. Be aware that M* is opposed to the proposal and has invested a lot on ESG analytics,   https://www.morningstar.com/articles/998787/strong-opposition-to-proposed-limits-on-esg-in-retiremen...

YBB
0 Kudos
Highlighted
Participant ○○

Re: DOL Rules Will Make ESG Funds Harder in 401k/403b

@IntruderThe 1.2 billion who do not have electricity are better informed than this.

"John Hale is too clueless to understand that there cannot be a global economic recovery without a dramatic increase in the use of fossil fuels because global economies cannot grow without the use of fossil fuels. Most developing countries that have decreased their poverty rates have increased rates of carbon emissions. 15% of the earths population 1.2 B, do not have electricity and all of the emerging market countries have pledged to provide electricity to their residents for which fossil fuels are the only affordable source of power. I can sit on my shares of CVX yielding a 6% qualifed dividend while I wait for the global economic recovery."

0 Kudos
Highlighted
Frequent Contributor

Re: DOL Rules Will Make ESG Funds Harder in 401k/403b


@Mortmain wrote:

@IntruderThe 1.2 billion who do not have electricity are better informed than this.

"John Hale is too clueless to understand that there cannot be a global economic recovery without a dramatic increase in the use of fossil fuels because global economies cannot grow without the use of fossil fuels. Most developing countries that have decreased their poverty rates have increased rates of carbon emissions. 15% of the earths population 1.2 B, do not have electricity and all of the emerging market countries have pledged to provide electricity to their residents for which fossil fuels are the only affordable source of power. I can sit on my shares of CVX yielding a 6% qualifed dividend while I wait for the global economic recovery."


How can they be better informed if they don’t have any electricity?

0 Kudos
Announcements