ESG Investing Conference

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ESG Investing

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Impact Investing Conference

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The Editorial Board
The Editorial Board




Oct. 20, 2021, 6:41 PM ET


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While Democrats in Congress negotiate trillions of dollars in new spending, Biden’s Administration quietly advances its agenda through regulation. A Labor Department proposal rule was proposed last week that will add new political directives for your retirement savings.

According to the Administration, the rule will make it easier to offer 401k funds that are focused on ESG (environmental social and governance) objectives. The rule will actually coerce workers to support progressive policies.

It is important to


Labor rule last autumn reinforced the requirement that the Employee Retirement Income Safety Act (Erisa), which requires retirement plan fiduciaries act “solely for the benefit” of participants, requires them to follow the Employee Retirement Income Security Law (Erisa). The rule prohibited pension plans and asset managers to consider ESG factors such as climate, workforce diversity, and political donations unless they had “material effects on the return or risk of an investment.”

Biden DOL will scrap the Trump rule, while notifying retirement sponsors and asset managers that they have a fiduciary obligation to include ESG in investment decisions. The rule proposed “makes it clear that climate change, and other ESG factors, are often material” and should therefore be considered in many cases when assessing investment risks and returns.

The rule-making states that a fiduciary’s duty could “often require an assessment of the effect climate change and/or government policies changes” on investments. Retirement plan sponsors will not be allowed to choose climate and social factors when investing. If they do not, they could be sued. Workers won’t have much say since plans won’t need to be submitted “to solicit preferences” for ESG.

Biden DOL asserts that ESG factors produce higher returns. DOL writes that “many compelling studies demonstrate the material financial benefits from diverse and inclusive workplaces.” However, it acknowledges that ESG benefits are not always correlated with better financial performance.

Many positive ESG studies misunderstand correlation and causation. Because they are heavily weighted toward Big Tech companies, whose stock prices have soared, some ESG funds have performed better than broader stock indices in recent years. These funds can also be subject to greater financial risk.

Asset managers love


ESG 401(k), funds are being created in part to charge higher fees. According to


The asset-weighted average expense ratio for U.S. “sustainable funds” was 0.61% in 2020, compared to 0.41% and 0.12% for open-ended mutual funds and exchange-traded funds. This difference can reduce retirement savings by tens or thousands of dollars over a number of decades.

Biden’s rule would allow plan sponsors to make ESG 401(k), funds the default for workers, which could lead to workers paying higher fees. It could also expose retirement plan sponsors to legal liability if it doesn’t support progressive shareholder resolutions such as those that require companies to reduce CO2 emissions and disclose political donations.

Many small pension plans avoid proxy voting because it would be too costly to do the necessary due diligence. Some want to avoid political controversy. DOL is not far from requiring that pension funds choose a political side. You know which side it is.

DOL states that voting proxies are an important lever to ensure that shareholders’ interests are protected, as well as the interests of company owners. “Stopping from a vote does not make it neutral, as it could determine whether a particular matter is approved or rejected.”

DOL says small plans can cut their costs by using the recommendations of proxy advisors, which happen to be the left-leaning proxy duopolists Glass Lewis or Institutional Shareholder Services. Both offer ESG research services, so they will benefit from the DOL rule.

All this amounts to a backdoor revision of Erisa, one the best laws of the past 50 years. Progressives are working across the Biden Administration in order to steer private capital towards a progressive agenda that they can’t pass through Congress. Your savings will be used to support the progressive agenda, regardless of whether you want it or not.

Biden’s plan to monitor cash flow into and out of bank accounts. Photo: EPA/Shutterstock

Copyright (c),2021 Dow Jones & Company, Inc. 87990cbe856818d5eddac44c7b1cdeb8

Published in the October 21, 2021 print edition.

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