Nicklaus: Do-good investing is gaining ground fast. Trump’s Labor Department wants to slow it down | David Nicklaus
A trader works at the New York Stock Exchange, Tuesday, November 24, 2020. The Dow Jones Industrial Average traded above 30,000 points for the first time as investors were encouraged by the latest progress on developing coronavirus vaccines and news that the transition of power in the U.S. to President-elect Joe Biden will finally begin. (Nicole Pereira/NYSE via AP)
Do-gooder investing has caught on with both the public and Wall Street, which now manages $17 trillion in funds that pay attention to social and environmental issues.
That’s one-third of all professionally managed money in the U.S. Clearly a lot of investors want their portfolios to be aligned with their values.
Regulators in Washington, though, seem leery of what’s sometimes called sustainable or socially responsible investing. The Labor Department issued a rule this month that will make it more difficult to include do-gooder funds in a 401(k) or other retirement plan.
The rule says plans must choose investments based solely on pecuniary, or financial, factors. If a plan wants to use a fund that screens for, say, a company’s carbon footprint or record in hiring and promoting women, it must document how that information has “a material effect on risk.”
That creates extra hoops for a plan sponsor to jump through, and it may have a chilling effect on the popular category of ESG funds, which focus on environmental, social and governance issues.
There’s a healthy argument over whether these funds can achieve superior returns while claiming the moral high ground. Fans of ESG funds say they avoid big risks, such as discrimination lawsuits and pollution cleanup costs, that sink less virtuous companies.
