The Labor Department is clearing a path for people to consider climate change and other environmental, social and governance factors when choosing retirement plans. The move reverses a Trump-era ruling that restricted financial firms to only consider how investments perform when determining what plans it would offer participants.
ESG funds purportedly screens companies for positive actions in the three categories that make up its namesake. But there’s heated debate in corporate America over whether ESG priorities help or hurt the bottom line.
“Companies that treat their employees better, that take care of the environment, that have women in the C-suite, all tend to perform better,” Kim Griego-Kiel previously told Straight Arrow News. Griego-Kiel is CEO of Horizons Sustainable Financial Services and an expert in socially-responsible investing.
“Claiming that this is about long-run shareholder value, claiming that this is about preparing for an energy transition, I think that those tautologies have been used as vehicles to advance agendas whose primary motivations were not at all oriented toward maximizing shareholder value in the end, even though they’re disguised in that language,” said Vivek Ramaswamy, founder of Strive Asset Management and a prominent anti-ESG voice.
Just as the Labor Department makes this change, the Securities and Exchange Commission is cracking down on funds claiming to be ESG. The SEC fined Goldman Sachs $4 million for failing to follow the company’s own ESG policies. Goldman Sachs has agreed to the fine without admitting fault.
“From April 2017 until June 2018, the company failed to have any written policies and procedures for ESG research in one product, and once policies and procedures were established, it failed to follow them consistently prior to February 2020,” the SEC wrote.
ESG has increasingly become a gray area as it grows in popularity, given there are no federal guidelines declaring a standard for ESG criteria. For now, financial institutions are tasked with setting their own practices for determining ESG factors before putting the label on a fund.
