THE U.S. Department of Labor (DOL) recently issued a rule that allows 401k’s and other retirement plans to offer funds that consider climate change and other environmental, social and governance (ESG) factors in their investment decisions. It reverses a Trump-era rule that effectively prohibited such investments from being offered in retirement plans. Heritage Foundation senior fellow Stephen Moore recently opined in these pages that the rule change “threatens your retirement savings.” This is nonsense.
The new rule acknowledges that climate change and other ESG issues — for example human capital issues such as diversity and inclusion — can be material to how companies perform and therefore to how retirement funds invested in those companies perform. A large body of academic and financial research confirms this. Careful consideration of sustainability or ESG factors can help spotlight risks and opportunities that companies — and therefore investors — face in a global economy that is transitioning from an industrial-age model to a more sustainable model.