There’s growing interest among investors and retirement plan participants to invest in environmental, social and governance (ESG) funds, particularly as the subject has gained an increasing amount of attention in the media thanks to heightened interest in global warming, corporate responsibility and social issues.
Is this the next evolution in building diversified investment menus or a legal trap that carries significant liability for plan sponsors?
That was the topic of a breakout session Monday morning at the Wealth@wor(k) conference in Nashville, Tenn., featuring advisor Alex Assaley of AFS 401(k) Retirement Services and Thomas Clark of The Wagner Law Group. The session covered where we’ve been, where we’re frozen right now, and where we might be going in the future.
“When we’re discussing this topic with our clients it’s really about helping them understand what ESG is—and what it is not, Assaley said.
He added that the vast majority of clients report having heard very little from their employees about adding ESG investing. Some do, but it is a relatively small minority. Meanwhile, the committees are thinking more about ESG criteria, with the social and governance components being much more prevalent than they used to be thanks to increased attention on diversity and inclusion.
Clark provided an overview of the regulatory environment, including recent developments spurred by the Biden Administration’s proposed ESG rule that is currently in the middle of a 60-day comment period and essentially seeks to reverse a rule promulgated by the Trump Administration.
Clark told the audience not to assume the new proposed rule is final, as it could well change depending on input during the comment period.
“It will be really interesting to see what the industry has to say about this during the comment period,” Clark said, before adding that he does think the Biden Administration will get a rule in the books in timer to “cook it in” before a possible new administration could rescind it.
Clark also reminded the audience that any ESG fund being put into a plan should not get any special treatment without risking trouble. “If you have a prominent investment methodology, you can’t deviate from it to sneak in a group of ESG funds,” he said. “These funds have to pass every screening that non-ESG funds do. Do not change the game to add ESG funds.”
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Veteran financial services industry journalist Brian Anderson joined 401(k) Specialist as Managing Editor in January 2019. He has led editorial content for a variety of well-known properties including Insurance Forums, Life Insurance Selling, National Underwriter Life & Health, and Senior Market Advisor. He has always maintained a focus on providing readers with timely, useful information intended to help them build their business.
