Well, this is interesting. Just noticed this on my home page in Personal Capital:

Quote:

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ERISA plan fiduciaries may not invest in ESG vehicles when they understand an underlying investment strategy of the vehicle is to subordinate return or increase risk for the purpose of non-financial objectives. Private employer-sponsored retirement plans are not vehicles for furthering social goals or policy objectives that are not in the financial interest of the plan. Rather, ERISA plans should be managed with unwavering focus on a single, very important social goal: providing for the retirement security of American workers.

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ESG = Environmental, Social, and Governance

Personal Capital's take is arguing both sides. They agree with bolded but think ESG vehicles are financially material and should be considered as fund choices. [They still can but could receive additional scrutiny under proposed rule].

This is clearly a management friendly move by the current administration's DOL that I assume is a countermeasure to the current trend of activist investors trying to push social issues through.

So they use the MSCI USA ESG Index.

YouBet said:

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Well, this is interesting. Just noticed this on my home page in Personal Capital:

Quote:

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ERISA plan fiduciaries may not invest in ESG vehicles when they understand an underlying investment strategy of the vehicle is to subordinate return or increase risk for the purpose of non-financial objectives. Private employer-sponsored retirement plans are not vehicles for furthering social goals or policy objectives that are not in the financial interest of the plan. Rather, ERISA plans should be managed with unwavering focus on a single, very important social goal: providing for the retirement security of American workers.

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ESG = Environmental, Social, and Governance

Personal Capital's take is arguing both sides. They agree with bolded but think ESG vehicles are financially material and should be considered as fund choices. [They still can but could receive additional scrutiny under proposed rule].

This is clearly a management friendly move by the current administration's DOL that I assume is a countermeasure to the current trend of activist investors trying to push social issues through.

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That is very interesting, and I had not seen this ERISA guideline. Thank you for sharing.

My quick take a bit different than your comment above. Two things jump out:
1) If XYZ company wanted to choose activist ESG mandate investments to promote their corporate agenda, maybe even to the exclusion of non-ESG offerings, they could be exposing themselves to legal action from plan participants. If correct, this is not management friendly, but participant friendly... consistent with most other ERISA rules.
2) Some ESG strategies don't sacrifice returns. Strong corporate governance practices theoretically help risk adjusted returns and maybe even absolute returns over time. Strong "E" and "S" factors can theoretically lead to improved risk/return dynamics by avoiding downside scenarios, a positive attribute. From only reading your note above, I think it is simply stating ESG investments that will clearly hurt return potential are inappropriate in ERISA covered accounts. If this take is correct, ESG itself isn't a problem, just a subset that is sacrificing returns, which ERISA deems not in the best interest of a plan participant.

Esg has shown to add roughly 200 basis points over s&p 500 returns.

To eliminate any conflict of interest by the plan sponsor. They offer an esg index fund. Passively managed. Index created by MSCI for example.

FunkyKO said:

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Esg has shown to add roughly 200 basis points over s&p 500 returns.

To eliminate any conflict of interest by the plan sponsor. They offer an esg index fund. Passively managed. Index created by MSCI for example.

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Virtually every study I've read on this over time appeared to have significant survivor bias embedded in the data. While I believe it could still be positive, or at least not-negative, do you have any sources handy that account for the high attrition rate of funds/ETFs in this space, and still come to prove-out outperformance?

Sure thing. Fund attrition can happen for a number or reasons. I'll come to that later

First you have to start with the index. MSCI for example, designs the methodology and makes the adjustments to the index. The etfs purpose is to match the Index. Simple enough right. That's what MSCI does. They will design an index for theor customers. Example. Did ishares approach MSCI and ask for a certain index. Or did MSCI approach ishares or vanguard and pitch them the idea.

Now. Esg evaluation has gotten "better". However there is no set "standard". So it is possible a
Company makes up its own esg numbers. Not likely but it could happen and it does happen That's rather simplistic but there is no official ESG standard. There are checklists that can be used. Carbon footprint. Check. Minorities in the board room check. Etc etc.

Different esg index's can have different stock selection allocations.

It seems the one that is getting the most attention right now is the MSCI USA Esg index. it has had anywhere from third highest to 5th highest fund inflows the last 12 months. Symbol ESGU mimics that index.

Edit. Meant to add this.

https://www.msci.com/esg-indexes

https://www.msci.com/documents/10199/180b72ea-8d96-471c-88c6-0c01fb682b76

As far as MSCI USA esg index. I find it strangely coincidental that the top 5 holdings are msft AAPL Amzn googl FB. How convenient right? The same top 5 of the s&p and the same top 5 of the Nasdaq 100. How convenient

I also find it coincidental that 70 of the Nasdaq 100 are among the 340 or so names on the index.

As far as fund attrition goes. Who knows why. Bad index? lack of marketing, higher fees from smaller houses If the index they followed didn't have the top 5 of msft AAPL Amzn googl or FB. Yes performance suffered.

From a research piece. The bottom line was esg can add roughly 200 bp over S&P 500 returns.

Will add some screenshots later. Gotta go skateboarding with fam.

Found it. From an ESG Primer piece last September.