The wind turbines run at the Gouda wind farm next to a road at sunset in Gouda, South Africa, on Wednesday, March 3, 2021.
Dwayne Senior / Bloomberg via Getty Images
ESG growth
Demand for investor ESG funds has grown sharply in recent years.
Investors invested $ 51.1 billion in new net money in these funds in 2020, a record and more than double the previous year, according to Morningstar.
These funds can, for example, invest in energy companies that do not depend on fossil fuels or in companies that promote racial and gender diversity.
Money managers have also been offering new ESG funds to investors. The number of sustainable funds available to U.S. investors grew to nearly 400 last year, 30 percent more than in 2019 and a nearly fourfold increase in a decade, according to Morningstar.
Trump’s rule
However, a small percentage of workplace retirement plans offer ESG funds.
About 3% of 401 (k) plans have an ESG fund, according to the Plan Sponsor Council of America. A portion of the plan’s assets (one-tenth of 1%) remain in these funds.
Retirement plans in the workplace, one of the great wealthy Americans, represent a huge source of untapped growth.
The Department of Labor measure does not fully require or prohibit ESG funding in 401 (k) plans. But, according to experts, it could already hinder its absorption.
The rule of the Trump era requires that entrepreneurs (who make decisions about 401 (k) investments) only consider factors such as the risk and return of a fund (rather than characteristics such as social or environmental good). when choosing 401 (k) funds. Otherwise, employers may call for broader legal scrutiny.
The Department of Labor also explicitly banned employers from automatically enrolling workers in an ESG-focused fund. Automatic enrollment has become an increasingly popular way to encourage workers to invest in a 401 (k).