Skip to main content
No. of Recommendations: 4
In June, the Secretary of Labor Eugene Scalia proposed new regulations on the use of Environmental, Social and Governance (ESG) investments, primarily mutual funds, in qualified retirement plans. Scalia says employer-sponsored plans ‘are not vehicles for furthering social goals or policy objectives.’ and so feels compelled to offer “clear regulatory guideposts” for plan fiduciaries in light of recent trends involving environmental investing. While it will take some time for industry experts to understand the proposed regulation, Scalia’s characterization is that this new ESG framework represents a tightening of what is permissible under ERISA.

This doesn't seem to make sense on a couple of fronts. Clearly, the ESG products industry is adamantly opposed to this new regulation and the fees it's sales can generate. But aside from this, it seems inconsistent with an administration that prides itself on REDUCING regulations, not creating new ones.

I think I'd agree with the Administration that ESG investing (aka 'green' investing or what some of the old timers call 'hippy' investing) has nothing to do with improving earnings of companies who do things the investor approves of while impeding the earnings of those companies who do things/sell things the investor does NOT approve has to do with virtue signaling or identity politics. I mean, MO doesn't know if I own 500 of their shares or I've sold those shares to someone else...nor do they care, as who owns the shares has NOTHING to do with their profitability. Buying their products/services has to do with profitability.

I have not burrowed into them individually, but Morningstar's Jon Hale sings the praise of ESG stock performance (for 2019 at least) while the Pacific Research Institute says Of the 18 ESG funds examined that had a full 10-year track record, a $10,000 ESG portfolio (equally divided across the funds, including the impact from management fees) would be 43.9% smaller after 10 years compared to a $10,000 investment into an S&P 500 Index fund.

But here's the part I don't get....whether crappy long term or adroit long term investments, isn't that up to the 401(k) plan owner? Why get involved with restricting these or any other legit investment that reports and discloses by the rules? If virtue signaling is more important that long term risk-adjusted returns, its the 401(k) account owner's money and so their decision. Correct?

Print the post  


The Retirement Investing Board
This is the board for all discussions related to Investing for and during retirement. To keep the board relevant and Foolish to everyone, please avoid making any posts pertaining to political partisanship. Fool on and Retire on!
What was Your Dumbest Investment?
Share it with us -- and learn from others' stories of flubs.
When Life Gives You Lemons
We all have had hardships and made poor decisions. The important thing is how we respond and grow. Read the story of a Fool who started from nothing, and looks to gain everything.
Contact Us
Contact Customer Service and other Fool departments here.
Work for Fools?
Winner of the Washingtonian great places to work, and Glassdoor #1 Company to Work For 2015! Have access to all of TMF's online and email products for FREE, and be paid for your contributions to TMF! Click the link and start your Fool career.