Correcting Myths On the Labor Department's ESG Rule

The Labor Department is now considering new rules that address whether criteria other than financial opportunity can be used to determine the investment of ERISA funds used for private employee pensions. Specifically, this proposed rule concerns whether private pension funds can invest in social justice-oriented funds, called ESG or “Environment, Social and Governance.” These funds purport to take into account a company’s commitment to the environment, social issues and diversity and equity in governance. Proponents of ESG investing are touting their funds as more resilient during times of economic upheaval and uncertainty but a new study contradicts these claims and suggests that much of the pro-ESG advocacy must be viewed with a skeptical eye. 

The government heavily regulates investment opportunities in America. It restricts who can invest in private businesses and sophisticated financial products. We have limits on who can sell investment opportunities and how they can be advertised. Not surprisingly, the proposed rule by the Department of Labor to curb investments that take goals other than financial returns into consideration has vocal opponents. Many of these are financial firms that see the opportunity to sell ESG funds as novel products.