On June 23, 2020, the Department of Labor (DOL) announced a proposed rule to provide further guidance for Employee Retirement Income Security Act (ERISA) plan fiduciaries interested in environmental, social, and governance (ESG) investing. These ESG strategies must be chosen based on their financial merits and CANNOT be selected solely for ethical investing purposes if they are to gain access to defined benefit (DB) and defined contribution (DC) plans. I couldn’t agree more.
The securing of the promised benefits needs to be the number one priority for DB plans. Selecting investment programs/strategies that even marginally reduces the chance to accomplish that objective should not be considered. Furthermore, despite the growing popularity of the ESG strategies, I haven’t seen any evidence that they are producing superior results to traditional active strategies.
Given the extremely crowded investing field, I can’t help but to think that highlighting an ESG capability is just one way to further differentiate one firm from the next. However, I’ve witnessed to many fads during my nearly four decades in the business to think that ESG investing isn’t just another one for the history books.
DB plans need to be protected and preserved as the primary retirement vehicle for the majority of American workers. Let’s get back to basics in securing the promised benefits for DB participants. There are other pockets of money that can explore all the investing fads that they want.