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New Labor Department Guidance Takes Aim at ESG Investing
El Gran Jefe's boys at the DOL don't want funds in your 401k plan excluding oil companies from their portfolios or supporting climate change disclosure or labor-related shareholder proposals:
Well you know what they can do about that don't ya? Major oil is dead money. Choose gas or gas pipelines if you must. My only play in that whole business is bucco EPD which I've held pretty much forever.
Would [an ESG fund] be legally protected if it removes all suggestions of making the world cleaner, or improving community relationships, and instead couches its ESG policies as being adopted solely from self-interest, so that it can outperform its competitors over the long term by owning companies that are more sustainable?
For example, ESG investors obviously expect the third part of their acronym, governance, to improve their portfolios’ performance. Their environmental and social concerns less clearly reflect self-interest, but ESG managers maintain that environmental and social concerns pose material risks that investors must consider, and that companies that manage such risks well will make their businesses more sustainable.
To which I reply horses--t. A livable planet is in everybody's self-interest, rightwing political propaganda notwithstanding. Climate change is real and it's coming for our portfolios--and our lives. Ostensibly retirement plans are supposed to be the ultimate long-term investors, investing for the entirety of their employees' careers. A 22-year old employee today can look for being in 401ks of various companies for some 43 years from today, during which climate change will have a significant impact on his/her portfolio. Saying otherwise is sticking one's head in the sand.
One of us is misreading this. "ESG managers maintain that environmental and social concerns pose material risks." To invest without consideration of environmental and social impacts is to ignore business risks. (The DOD has declared climate change a security risk and is required to plan accordingly.) Companies and fund managers who ignore material risks are effectively breaching their fiduciary duty.
I will take issue with your 22 year old employee example. A good sound bite, but not representative of investors in a company's 401k plan. The dollar weighted average age of 401k investors is much higher than that. (I say this with confidence without having checked the figures.)
Generalize this to workers who are concerned about their beneficiaries as well as their own futures and that would make a stronger case.
I'm not disagreeing with you regarding the "ESG managers" part, but with the author's assertion that "Their environmental and social concerns less clearly reflect self-interest." I fundamentally disagree. The average employee age is irrelevant unless you believe this current generation is the last to invest in 401ks. The future of 401k investors is on the line. Actually, I am disagreeing with you somewhat because using a phrase like "ESG managers maintain..." casts doubt on the reality of the business risks climate change poses. The verb "maintain" suggests a weak lawyerly defensive argument by ESG managers as opposed to the scientific facts of the risks, which in 2020 are more couched in reality than any finance theory currently treated as gospel. The equivalent phrasing would be "Bill Cosby maintains his innocence."
Is it November, yet? HURRY! The current "administration" is one travesty of an abortion after another after another after another. In EVERY CONCEIVABLE DIRECTION. Day after day after day. It is a nonstop onslaught, which is surely by design. People who own consciences need to make sure that ANYONE from ANY other Party wins every available Seat in November, including the Chief Executive.
You aren't a business person and have no clue about anything. Stay the f out of my investments and stop trying to mess up people's investment options to save certain industry sectors or special interest buddies.
Btw, how is your week going? Mine's full of epic schadenfreude!
No Love,
-- Rick
@WABC: I think you're right. DOD has incorporated climate change into base planning measures looking into the future. But there are some major DOD analyses floating around that cite climate change leading to droughts and food shortages and food distribution problems (due to increasingly violent storms) etc that they frame (rightly so) as a national security & operational concern.
In case you are wondering: SCHADENFREUDE ( is the experience of pleasure, joy, or self-satisfaction that comes from learning of or witnessing the troubles, failures, or humiliation of another. ) Derf
The reason I linked to the 2015 DOD report rather than the 2019 report is that the former makes reference to more than fortifying its fortresses.
The report finds that climate change is a security risk, Pentagon officials said, because it degrades living conditions, human security and the ability of governments to meet the basic needs of their populations. Communities and states that already are fragile and have limited resources are significantly more vulnerable to disruption and far less likely to respond effectively and be resilient to new challenges, they added.
My take on of all of the above links was the ridiculousness & arbitrariness of the DOL regarding this proposal.
As pointed out in Rekenthaler's piece:
The second implication is that corporate plans will profit by switching from actively run ESG investments to lower-cost indexers. That may be true. But once again, the same logic would seem to apply to all actively managed investments. This book, after all, has been written. We know that active managers of all stripes, both retail and institution, tend to lag index funds. It is strange that the DOL’s counsel extends only to one flavor of active management, rather than the entire field.
As Bloomberg's Matt Levine points out, each of those two sides thinks that it is best positioned to make such decisions. "Under Donald Trump," writes Levine, the U.S. government says "coal is great, more coal please," while BlackRock (being an ESG investor) responds "coal is bad, no more coal please." Levine continues, "The people making environmental, social, and governance issues should be the government, says the government; the asset managers and pension funds had better stick to making money.
Which is ironic coming from a Trump administration touting less regulation. And whose stance on Covid-19 has been & still is everyone fend for themselves.
Contrast this with Europe & ESG investing (as well as Covid-19):
Globally, getting ahead of regulation and viewing ESG as a fiduciary duty were the top factors for adopting ESG scoring 46% while mitigating ESG risks was highlighted by 44% of respondents.
Comments
https://www.morningstar.com/articles/990580/the-department-of-labor-attempts-to-throttle-esg-investing
I will take issue with your 22 year old employee example. A good sound bite, but not representative of investors in a company's 401k plan. The dollar weighted average age of 401k investors is much higher than that. (I say this with confidence without having checked the figures.)
Generalize this to workers who are concerned about their beneficiaries as well as their own futures and that would make a stronger case.
IIRC there was a lot of smoke about Congressional, or Executive, action to prevent DOD from taking climate considerations into account.
But now that I think about it . . . I think that was about mitigation plans for bases, like Norfolk, at sea level.
You aren't a business person and have no clue about anything. Stay the f out of my investments and stop trying to mess up people's investment options to save certain industry sectors or special interest buddies.
Btw, how is your week going? Mine's full of epic schadenfreude!
No Love,
-- Rick
@WABC: I think you're right. DOD has incorporated climate change into base planning measures looking into the future. But there are some major DOD analyses floating around that cite climate change leading to droughts and food shortages and food distribution problems (due to increasingly violent storms) etc that they frame (rightly so) as a national security & operational concern.
( is the experience of pleasure, joy, or self-satisfaction that comes from learning of or witnessing the troubles, failures, or humiliation of another. )
Derf
As pointed out in Rekenthaler's piece: Which is ironic coming from a Trump administration touting less regulation. And whose stance on Covid-19 has been & still is everyone fend for themselves.
Contrast this with Europe & ESG investing (as well as Covid-19): Regulatory shifts driving ESG uptake in Europe
ETF Insight: ESG ETFs score major victory during coronavirus turmoil
ETF issuers not focusing on ESG are set to lose out in a big way