By Bronson Winslow
- The U.S. Department of Labor (DOL) will allow plan fiduciaries to invest retirement funds into companies that promote climate change and other environmental, social and governance (ESG) factors.
- The rule follows the overturning of a Trump administration rule that barred companies from evaluating ESG factors when making investment decisions.
- The new rule “betrays” the interests of those who have funded the accounts and places “enormous pressure” on fiduciaries to focus on ESG factors over more significant factors, experts told the Daily Caller News Foundation.
The U.S. Department of Labor (DOL) will allow retirement plan fiduciaries to invest funds into companies that promote climate change and other environmental, social and governance (ESG) factors, according to a Tuesday DOL release.
The DOL’s decision overturns a Trump administration rule that barred companies from evaluating ESG factors when making investment decisions, stating that the rule “unnecessarily restrained” the fiduciaries’ ability to weigh ESG factors that benefit plan participants financially. Despite the DOL’s belief that ESG will not hinder financial gains for those who have paid into the retirement plans, the new rule “betrays” the interests of those who have funded the accounts and places “enormous pressure” on fiduciaries to focus on ESG factors over more significant factors, experts told the Daily Caller News Foundation. (RELATED: REPORT: House Republicans To Investigate Chamber Of Commerce Over ESG If They Take The Majority)
“The problem with the DOL rule is not that it permits fiduciaries to consider ESG factors,” Amberwave Partners co-founder and portfolio manager Dan Katz told the DCNF. “The problem with the rule is that it adds to the enormous pressure on fiduciaries to overemphasize ESG factors over other, typically more significant, factors that ESG ignores.”
“This is a mistake and betrays the interests of the people who the US Department of Labor is supposed to serve: American workers and retirees,” Strive Asset Management Executive Chairman Vivek Ramaswamy told the DCNF.
The DOL hopes that both retirement plans, pensions and companies that account for ESG will be able to benefit from the new rule, according to the release.
“Today’s rule clarifies that retirement plan fiduciaries can take into account the potential financial benefits of investing in companies committed to positive environmental, social and governance actions as they help plan participants make the most of their retirement benefits,” Labor Secretary Marty Walsh said in the release. “Removing the prior administration’s restrictions on plan fiduciaries will help America’s workers and their families as they save for a secure retirement.”
🧵 Today, we issued a final rule that allows retirement plan investors to take climate change and other environmental, social and governance (ESG) factors into consideration when making investment decisions: https://t.co/yg5MAntNFn (1/5)
— U.S. Department of Labor (@USDOL) November 22, 2022
“DOL’s final rule released today includes 107 mentions of ‘climate change’ and yet does not mention ‘China’ once. Any fiduciary following this recipe is not likely to be a prudent steward of beneficiaries’ savings,” Katz said.
In August, Republican Florida Gov. Ron DeSantis banned state fund managers from considering ESG when managing state funds.
“This update to the fiduciary duties of the SBA’s investment fund managers and investment advisors clearly defines the factors fiduciaries are to consider in investment decisions and states that ESG considerations will not be included in the state of Florida’s pension investment management practices,” DeSantis’ office said in a press release.
In October, Kentucky Attorney General Daniel Cameron and State Treasurer Allison Ball called on the state’s Public Pension Authority and Teachers’ Retirement System to prove that they were not investing pension funds to promote ESG. Cameron and Ball state that ESG investing is illegal as it violates “statutory and contractual fiduciary duties” by trying to “force social change” instead of working toward profits.
Ramaswamy believes the new rule defeats the DOL’s mission that “providing a secure retirement for American workers is the paramount and eminently worthy social goal,” saying the DOL should “scrap” the rule now, according to a July opinion piece in The Wall Street Journal.