The Biden administration has quietly finalized a rule allowing employers to funnel workers’ 401(k) funds into investments that support woke causes that address issues such as climate change and diversity.
The Labor Department approved the rule last week, just two days before the Thanksgiving break. It will affect roughly 150 million workers and $10 trillion in assets covered under the Employee Retirement Income Security Act of 1974.
The rule says asset managers and retirement plan administrators should consider environmental, social and corporate governance (ESG) factors when selecting investments.
That would encourage money managers to balance financial returns with investments that support wind and solar energy or have diverse boards of directors.
The rules also remove a restriction blocking employers from using an ESG fund as a default option for workers automatically enrolled in 401(k) plans. That means workers could be supporting causes that don’t align with their political views.
It also rescinds Trump-era regulations that require retirement plan administrators and asset managers to choose investments based solely on participants’ financial interests.
Labor Department officials said the Trump administration rules “unnecessarily restrained” fiduciaries’ ability to weigh ESG factors when choosing 401(k) investments.
“A final rule is necessary to reverse the [Trump-era] rule’s chilling effect on the integration of ESG factors into the investment selection and asset management process,” Lisa M. Gomez, assistant secretary of labor for the Employee Benefits Security Administration, told reporters during a conference call to discuss the rule.
Ms. Gomez emphasized that investment managers may consider ESG factors when making decisions but are not required to do so.
“While climate change is a critical issue, that’s not what this rule is about,” she said.
Republicans say it’s a coordinated effort by money managers to invest Americans’ retirement funds into woke causes.
In November, a group of Republican lawmakers sent letters to 51 law firms across the country warning that investments in ESG issues could run afoul of antitrust laws.
The move signals that Republicans will make the battle over “woke capitalism” a key issue when they regain control of the House next month. It makes it clear that Republicans are eager to haul lawyers, chief executives and government officials before Congress to explain why Americans’ investments should be funneled toward ESG causes.
Republicans say the plan violates antitrust laws because asset managers are collaborating to shift investments toward ESG companies, thus making it difficult for oil and gas companies to raise capital. They say that will ultimately lead to less production and increased costs.
“The ESG movement attempts to weaponize corporations to reshape society in ways that Americans would never endorse at the ballot box,” the lawmakers wrote. “Of particular concern is the effort to restrict the supply of coal, oil, and gas, which is driving up energy costs across the globe and empowering America’s adversaries abroad.”
Republicans have also targeted ESG at the state level. Republican-led states have removed more than $1.5 billion in investment funds from BlackRock, the world’s largest asset manager, because of concerns that the company is prioritizing investments in climate initiatives while discouraging investments in fossil fuels.... (Read more)
Submitted 60 days ago