The problem with ESG funds

Ary Rosenbaum

Ary Rosenbaum - The Rosenbaum Law Firm P.C.

Over the last 10 years, more and more plan sponsors have opted for environmental and social mutual funds. The problem with these funds is fiduciary concerns since a fiduciary should strive for better performance for their plan.

The Department of Labor (DOL) provided an update and clarified its investment duties regulation for employer-sponsored retirement plans, such as 401(k)s, that are governed by ERISA. It emphasizes that a retirement plan must focus on financial returns for participants.

The DOL said that its motivation was to provide guidance for plan sponsors/fiduciaries because of the frequent use of environmental, social, and governance investing. The DOL seems too concerned that the growing emphasis on ESG investing may be prompting ERISA plan fiduciaries to make investment decisions for purposes unrelated to greater financial performance.

The DOL said it is not trying to curb ESG holdings, but it is emphasizing that plan fiduciaries shouldn’t increase the cost of a plan or curb its return in order to make ESG investments available.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Ary Rosenbaum, The Rosenbaum Law Firm P.C. | Attorney Advertising

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Ary Rosenbaum

The Rosenbaum Law Firm P.C. on:

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