Friday, March 05, 2021

ENVIRONMENT, SOCIAL, GOVERNANCE
Wall Street wants to end Trump-era(ANTI) ESG fund rule for 401(k) plans

Investor demand for ESG funds has grown sharply in recent years.

EVEN CRAMER LOVES ESG

Greg Iacurci  CNBC
3/4/2021

The Labor Department issued a rule in October, during the Trump administration, that experts say would curb use of ESG funds in 401(k) plans.

Money managers and other stakeholders are pushing the Biden administration to scrap the rule or agree not to enforce it, according to a report in The Wall Street Journal.

Investor demand for ESG funds has grown significantly. 401(k) plans represent a big untapped growth source.
© Provided by CNBC Wind turbines operate at the Gouda wind power facility alongside a road at dusk in Gouda, South Africa, on Wednesday, March 3, 2021.

Wall Street firms are lobbying the White House to reverse a rule issued by the former Trump administration that makes it harder to offer environmental, social and governance — or ESG — funds in 401(k) plans.

That information is according to a report in The Wall Street Journal.

The Labor Department issued the rule in October.

Lobbyists who represent money managers (and other stakeholders, such as pensions and retirees) made calls to the Biden transition team after the rule was announced, according to the WSJ. Some asked the administration not to enforce the rule and to place it under review, according to the report.


The Biden administration in January announced a review of the rule.
ESG growth

Investor demand for ESG funds has grown sharply in recent years.

Investors poured $51.1 billion of net new money into such funds in 2020, a record and more than double the prior year, according to Morningstar.

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Such funds may, for example, invest in energy firms that aren't reliant on fossil fuels or in companies that promote racial and gender diversity.

Money managers have also been offering new ESG funds to investors. The number of sustainable funds available to U.S. investors grew to almost 400 last year — up 30% from 2019 and a nearly fourfold increase over a decade, according to Morningstar.

Trump rule

Yet, a small percentage of workplace retirement plans offer ESG funds.

Around 3% of 401(k) plans have an ESG fund, according to the Plan Sponsor Council of America. A fraction of plan assets (a tenth of 1%) are held in such funds.

Workplace retirement plans — one of American's biggest pots of wealth — represent a huge untapped source of growth.

The Labor Department measure doesn't explicitly call out or outright forbid ESG funds in 401(k) plans. But it could stymie already lackluster uptake, according to experts.

The Trump-era rule requires employers — who make decisions around 401(k) investments — to only consider factors like a fund's risk and return (rather than characteristics like social or environmental good) when choosing 401(k) funds. Otherwise, employers may invite more legal scrutiny.

The Labor Department also explicitly disallowed employers from automatically enrolling workers into an ESG-focused fund. Automatic enrollment has become an increasingly popular way to nudge workers to invest in a 401(k).

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