- Now that ESG investments are outperforming traditional ones, it would seem hard to argue that ESG investing would go against fiduciary duty. Alas, it’s 2020. The Department of Labor proposes limiting ESG investing in pension funds.
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The uproar over the proposed U.S. rule limiting ESG in pension funds has its roots in…the Great Depression.
The infamous stock market crash of 1929 that kicked off the Depression had a lot of contributing factors, but a significant one was speculation: it was very, very easy for someone’s entire life savings (remember, this was pre-Social Security) to end up sunk into an uninhabitable, alligator-infested Florida swampland — and there was virtually no accountability or recourse.
To prevent this from happening again, in 1934 the U.S. Congress created the Securities and Exchange Commission, which then set fiduciary duty standards for all asset managers. In practice, this means that investment decisions must be made based on maximizing financial returns. Impact investors have argued that including environmental sustainability and other ESG metrics in investment decisions are in line with fiduciary duty, because they speak to the long-term health of a portfolio in a world where climate change is real. Now that ESG investments are outperforming traditional ones, it would seem hard to argue that ESG investing would go against fiduciary duty.
Alas, it’s 2020. The proposed rule by the Trump Administration would narrow the scope of fiduciary duty to consideration of risk and return by requiring fund administrators to prove that ESG investments — which many banks offer as default options — are not sacrificing financial returns.
Just like it was a bad idea in 1925 to risk everything on a Florida swamp, it’s probably a bad idea in 2020 to risk everything on fossil fuels.
In Other News: Solar Panel ‘Rivers,’ Immigration Bonds
India is turning its canals into solar panel “rivers.” The new Freedom100 Fund uses blended finance to fund immigration bonds. How can impact investors in South Africa increase their portfolios? The relative use of the term “ethical” to describe funds continues to confuse people. The U.K. government will redesign its app for streamlining visa applications to be less racist. Rescuing the economy by reopening is not actually rescuing any economies.
Public pools closed? There’s now an app for renting private swimming pools by the hour.