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| Funds like this one from BlackRock's iShares now list ESG no-nos. Trumpists couldn't care less. |
The Trump administration is essentially a throwback to a time when white men ruled the world, burned fossil fuels with wild abandon, and were unapologetic about America's dodgy history concerning racism. So, it was perhaps inevitable that one of its last few efforts on the way out the door was to throw a middle finger to the very idea of environmental, social and governance [ESG] investing. You see, the US government manages any number of funds, including those of government employees for retirement.
The Department of Labor manages one of these, and under the guise of maximizing returns and not entertaining misguided leftist ideas about being politically correct while investing, it has ruled out ESG criteria:
In a new Department of Labor (DOL) rule issued on October 30, the DOL essentially prohibits the use of widely used environmental, social and governance (ESG) factors in selecting investments for employee retirement plans...
For 30 years, however, the US Department of Labor has been considering whether recommending these kinds of investments in employee retirement accounts - that is, those factors which look at other than financial objectives - might be problematic. Their concern was that by focusing on the ESG needs, a manager using ESG products was not focusing attention on the client's financial goals - which is the basic fiduciary requirement under DOL rules.
Alike with many of these parting shots from the Trump administration, however, the mad rush to get them done make them vulnerable to rollbacks when Joe Biden becomes president.
Unlike many DOL rules, which typically take at least 18 months and often years to be passed, the ESG rule was pushed through at "warp speed," commented Bryan McGannon of US SIF, a sustainable business policy group. But it is considered likely that litigation under the Administrative Procedures Act may reverse the rule or that an incoming Biden administration may well act to reverse the rule. The Biden administration has been predicted to be far more sympathetic to ESG issues and is expected by some to begin reversing controversial Trump administration policies such as this.
In the end, the large and growing interest from investors in ESG investments as well as the likely hostility of the incoming administration to the new rule make it unlikely that the rule will stand. Moreover, the current research and performance history demonstrate that it probably shouldn't.
I think the economic rationale of ESG will ultimately prove irresistible anyway. Arms, energy and tobacco are your archetypal sunset industries, and stock valuations do bear this assertion out. The days of--shall we call it antisocial investing?--are numbered.