The SEC And Institutional Attack On ESG Investments
We Get It Don’t Invest In The Future…
On October 30th, 2020, the United States Department of Labor (DOL) decided that Environmental and Social Governance (ESG’s) investments could not be used in retirement accounts. They determined that retirement accounts should solely be for investing in funds that provide financial benefits to the beneficiary of the funds versus focusing on a non-financial policy benefit.
According to Nerd Wallet, ESG’s are funds focus on investing in companies that aim to have a sustainable and societal impact in the world. Including companies that aim to have a lower carbon footprint or diverse leadership boards.
ESG Investments Performance
Studies from JUST Capital, Arabesque Partners and other companies have showcased that ESG funds not only match traditional fund performance, but can also outperform them. In 2019 a white paper form Morgan Stanley Institute for Sustainable Investing showcased that in 2004 to 2018, eleven thousand ESG funds had a lower amount of risk compared to traditional funds. Including showing resistance in mixed economy performances.
On January 8th, 2021, Morningstar put out a report suggesting that ESG funds accounts have a clear advantage over traditional funds. Companies that goal was to lower carbon footprints outperformed. Suggesting that over the last year, investors have gravitated towards ESG index funds over traditional.
“The realization that a growing portion of their investor base is composed of sustainable investors is helping companies move away from a short-term shareholder-centric approach to a longer-term perspective that focuses on creating value for all stakeholders, with better outcomes for society and the planet,” (Morningstar).
The ideology that the Department of Labor sought to remove ESG funds from retirement accounts on the premise that it was focused on policy and not the financials, is a lie. Companies that review stocks and investment funds all the time, like Morningstar reviewed the fiscal performance, and proved it lowered risks and increased portfolio investments. To prove they were focused solely on removing ESG funds from existence, then protecting the everyday investor, we would have to look closer at the new agency the SEC created to regulate ESG funds.
The SEC New Agency to Regulate ESG Funds
On March 4th, 2021, the Securities and Exchange Commission (SEC) announced the creation of a Climate and ESG Task Force in the Division of Enforcement. Twenty-two members drawn from the SEC headquarters, regional offices and enforcement divisions. They will develop initiatives and disclosures to regulate misconduct on ESG funds through data analysis, asses information across registrants and identify potential violations.
The new chair of the task force mentioned this: “Climate risks and sustainability are critical issues for the investing public and our capital markets,” said Acting Chair Allison Herren Lee.
The Federal Government acknowledges that ESG investments are the future and what Americans find very crucial, although continue to participate in actions to interfere with investment strategies Americans have proved are important to them. According to The Hill, historically there has been push back from Republican chairman’s from reviewing ESG’s implementation to the SEC agencies.
Impact on Investors
In 2020 alone, 10 Million brokerage accounts were opened. Although brokerage accounts do not equal human populations, and there still many that don’t invest at all nether less in addition to retirement accounts. According to a TD Ameritrade Survey approximately 62% of Americans don’t have enough money to retire or on track to have enough. A Finance Buzzy survey founds that 35% of Americans do not even own a retirement account.
The Bottom Line
The reality is the Department of Labor (DOL) removing the ability to invest in ESG funds, removed the ability for retail investors that benefit from companies to participate. With nearly 35% of Americans not even owning a retirement account, netherless a brokerage account to independently invest in these funds, it provides less of an opportunity for it to succeed long term. Although, the SEC investigations into regulating the legitimacy of an ESG fund helps investors determine real investments, it lacks real value when communities it benefit are fiscally disabled to participate.
Morningstar, Morgan Stanley and Nerd Wallet all highlight the social and fiscal benefit that these investments can have. That non-financial doesn’t mean you are giving up fiscal benefit, but seeking funds that meet more than one requirement. Diverse leadership boards and lower carbon footprints are our future, investing for retirement isn’t about short-term gains, but long term investments. Deterring certain participation in long term investments that have proof to be our future, is going against the purpose of retirement accounts.
What do you think about the DOL decision? Do you think the SEC creating an agency for regulation calls for it being a financial fund and not just a policy? Leave a clap too.
