Nothing could better illustrate the disastrous direction the US Government is currently taking on sustainability than its Department of Labor’s investigation into the use of ESG funds as part of US DC plans.
While last week saw the UK’s equivalent (DWP) mandating master trusts to adopt ESG principles by aligning with the TCFD, across the pond the US authorities were putting the fear of God into plan sponsors daring to do the same.
Quoting from the US Pensions and Investments website Pionline…
The U.S. Department of Labor has initiated a behind-the-scenes industry inquiry into the use of ESG investments in defined contribution plans, a move that many say supports proposed regulations to make it harder to include socially responsible funds in retirement plans.
In an enforcement letter sent to employers with environmental, social and governance-themed funds in their investment lineups, the agency requested a slew of documents, including materials showing the “names, addresses and responsibilities of all persons or entities with responsibility for making investment decisions.”
Initially , having previously supported ESG investment, the DOL’s behaviour was supposed to be about wasting money on “green-washing”, a practice where fund managers rinse money into their coffers by charging for green funds which do nothing to improve E S or G.
However there is now a conspiracy theory that pressure is coming from the White House to prevent investment managers suppressing Republican’s predilections. Specifically their encouragement to middle America to burn fossil fuels, businesses to redistribute from poor to the rich and lawmakers to ignore the principals of good governance accepted in other western democracies.
Wealth in the US is increasingly concentrated in the hands of an elite 10% and these DC pensions (known as 401k plans) one of the few areas where private individuals participate in the growth of US markets.
Industry observers believe that the inquiry and proposed rule-making are likely to have a chilling effect on plan sponsors looking to add ESG investments to their plans. Sponsors are “stepping carefully,” Mr. Levine said, noting that processes to add socially responsible funds “may have slowed down” in some cases.
“I think plan sponsors are probably more reluctant to take a risk and add a fund that is not 100% best of its class if it has an ESG factor to it,” said one of these observers.
Speaking as a Brit who is proud of the stance on climate change investments taken by our DWP this week, I am very glad not to be American.