By Julie Moret
The Department of Labor’s proposed regulation on “Financial Factors in Selecting Plan Investments,” otherwise known as the DOL ESG rule , takes the misguided view that incorporating ESG factors is not relevant in the pursuit of risk-adjusted returns and requires a trade-off with performance. In short, it makes it harder for ESG investments to be included in retirement plans and prohibits them from being selected as a qualified default investment alternative ‘’QDIA’’ in 401(k) plans.
The DOL uses the term “non-pecuniary,” which means they are unable to be quantified, and effectively defines ESG considerations as return concessionary, meaning they are trading off performance by taking ESG into account. As such, this singles out every application of ESG with a broad reach. Essentially, the DOL says it aims to safeguard retirement security, but instead the proposal disadvantages the end saver. This harms investors by ultimately limiting investment choice.