The Politics of ESG Investing

At the heart of everything in the 401(k) plan business, politics does play a part.

Environmental, social, and governance (ESG) funds are all the talk of the business because of a proposal set forth by the President Trump led Department of Labor (DOL).

The DOL has proposed a rule that would limit the ability of retirement plans to include investment funds or strategies that integrate ESG factors into their investment process.

The DOL talks about the need for picking funds on performance, rather than ESG principles. Plan providers and plan sponsors are calling foul, but as the Joker in The Dark Knight said: “why so serious?”

If Trump is re-elected and the proposal becomes a final rule, the change is negligible. ESG funds are hard to find in defined-contribution plan lineups. Only about 4.5% of plans had at least one sustainable fund, and they made up, on average, 0.17% of a plan’s offerings. Why the outrage? It’s just politics on one side or the other.

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