Technology

Labor vs. the ESG Racket


One of the stakes in who controls the Senate in 2021 is the fate of the Trump Administration’s deregulation project. A GOP Senate could block Democrats from using of the Congressional Review Act to overturn important rules. A valuable case in point is the new Labor Department rule requiring that retirement plan managers invest in the best financial interest of their beneficiaries.

Last month DOL finalized a rule underlining that the Employee Retirement Income Security Act (Erisa) requires plan fiduciaries to act “solely in the interest” of plan participants “for the exclusive purpose of providing benefits” and “defraying reasonable expenses.” In other words, managers can’t prioritize their own pecuniary or political interests.

This shouldn’t be controversial. The Supreme Court unanimously ruled in Fifth Third Bancorp v. Dudenhoeffer (2014) that Erisa’s reference to benefits signifies “financial” rather than “nonpecuniary” benefits. For example, a fiduciary can’t invest employees’ retirements exclusively in their own employer’s stock if the “financial goals demand the contrary,” Justices explained.

A fiduciary also can’t invest retirement assets only in companies with low carbon emissions or racially diverse workforces when these aren’t linked to financial returns. The Labor rule clarifies that financial factors are those that have a “material effect on the return and risk of an investment.”

Asset managers like BlackRock , Fidelity and Vanguard say ESG funds perform better over the long-term, but the evidence is spotty. A Pacific Research Institute study last year found that the S&P 500 outperformed a broad basket of ESG funds over a decade by nearly 44%. One reason is many ESG funds excluded companies like Amazon , Netflix and Mastercard .



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