President Trump doesn’t want your investments making the world a better place.
The U.S. Department of Labor issued a proposed rule recently that would make it more difficult for those managing your retirement money to invest in socially responsible funds. It’s yet another way Donald Trump is seeking to make doing the right thing as inconvenient as possible.
ESG funds are investment vehicles that set minimum standards for environmental, social, and corporate governance (ESG) practices. They put their investors’ money into responsible companies that are more likely to make the world a better place. For instance, they don’t buy stock in companies that make weapons or tobacco products or have been cited for corrupt practices. They also typically avoid fossil fuel companies, although some make exceptions for companies that are aggressively moving toward cleaner energy sources.
There are two main reasons that people who manage pension and 401(k) funds are interested in ESG funds. First, many employees—especially young people who have the largest stake in what the future looks like—are pushing to get their retirement funds out of companies that don’t represent their values. This is an entirely reasonable request. The average retirement plan gives employees little control over how their money is invested—even though this money belongs to the employees. People have a right to put some limits on where their money goes.
Equally important is the impressive financial performance of ESG funds in recent years. Study after study has shown them equaling or outperforming the general market. This trend has intensified since the novel coronavirus outbreak. In the first quarter of 2020, 94 percent of ESG funds outperformed traditional stock indexes. If the financial performance is sustained, it’s a win-win situation. More money for investors, plus an incentive for companies to shape up their environmental and social practices.
Why wouldn’t the Trump administration want that to happen? It’s worth pointing out that the Trump administration has gone to great lengths to court the gun industry and gun rights lobbyists, even categorizing gun dealers and shooting ranges as “essential businesses” during the COVID-19 pandemic. The recipients of tobacco industry money are overwhelmingly Republican. And, of course, the oil and gas industry has given huge sums of money to President Trump and his allies and they have consistently sought to prop it up. These industries don’t want to see environmentally and socially responsible investing become the norm—a world in which these companies’ stocks become as toxic to investors as their products are to communities and the environment.