ESG Not Always a “Prudent Choice”: U.S. Department of Labour

pollutionThis week, the U.S. Department of Labour which oversees retirement plans published guidelinesaimed at investments based on environmental, social, and governance issues (ESG). On Monday the Department released a bulletin saying “fiduciaries may not sacrifice returns or assume greater risks to promote collateral environmental, social, or corporate governance (ESG) policy goals when making investment decisions.”

It also added that fiduciaries must always put in the economic interests of the plan first and avoid “too readily treating ESG issues as being economically relevant to any particular investment choice.”

ESG investing has been on the rise among North American institutional investors – according to Greenwich, 27% of institutions are applying it to some degree in their portfolios and another 45% plan to use it in the future.

The Department of Labour’s announcement came as a surprise to some in the industry, including Fiona Reynolds, chief executive officer of the United Nations Principles for Responsible Investment, who told Bloombergshe worries it will create confusion among investors. As she explained, “It is difficult to understand the reasoning…Markets are in no doubt of the materiality of ESG considerations.”