Trump DOL plan to limit ESG investments in 401(k)s faces industry disapproval
Analysis of 8,737 public comments made on the rule found found high percentage of investment-related groups were opposed to it.
Public comments have overwhelmingly opposed a proposed rule by the Department of Labor that would limit the use of investments that consider environmental, social, and corporate governance (ESG) issues in worker retirement plans subject to ERISA, according to a report published August 20.
The Notice of Proposed Rulemaking (NPRM), titled “Financial Factors in Selecting Plan Investments,” issued by the Dept of Labor Employee Benefits Security Administration on June 30, has become a matter of significant and growing interest to investors, retirement-plan participants, and beneficiaries.
Principal authors of the report, Julie Gorte, PhD, from Impax Asset Management and Jon Hale, PhD, CFA, from Morningstar Research Services, analysed 8,737 public comments made during a limited 30-day comment period (usually 60-days), finding more than 95% of the comments opposed the rule.
“By singling out a group of funds whose track record and performance demonstrates competitive or superior risk-adjusted returns with little to no empirical evidence for doing so, the rule would likely penalize retirement plans, asset owners and managers with burdensome new requirements that are both unnecessary and unwarranted,” said the authors.
“It would also substitute the judgment of government bureaucrats for the wisdom of financial markets,” said the authors.
8,337 of the comments were made by individuals, and the comments included several petition letters signed by thousands of individuals.
The report found that public comments received on the NPRM were overwhelmingly opposed across individuals (96%), investment-related groups (94%), and non-investment-related groups (57%). Non-financial trade associations are the only one of the 13 commenter types in which supportive comments outweighed opposing comments.
“The proposal amends the “Investment duties” regulation under Title I of the Employee Retirement Income SecurityAct of 1974, as amended (ERISA), to confirm that ERISA requires plan fiduciaries to select investments and investment courses of action based solely on financial considerations relevant to the risk-adjusted economic value of a particular investment or investment course of action,” according to the report.
The Dept of Labor is required to take the arguments made into consideration before rendering a decision, although, the authors expressed concern “that the short comment period it provided, and the short time before the November election indicates an intention to rush through a final rule.”
There is no reason to hold ESG to a higher level of scrutiny than other types of investments, according to the report.
The report argues the “NPRM has not shown that a problem exists that is in need of regulatory action, either that plan fiduciaries have been inappropriately selecting ESG investments, or that ESG-focused funds have given up returns in exchange for “non-pecuniary” benefits.”
Furthermore, the report notes the significant research establishing the materiality of ESG and the competitive performance of ESG-focused funds.
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