Biden BREAKS Trump rule, tells 401k investors to prioritize green investments over profits, despite plans already losing $34,000 on average this year
- Employers will now be able to invest pension money in green industries
- ESG investing considers the environmental and social impacts of investments
- The change undoes a rule imposed by Trump that requires prioritizing profits
- The new rule, promoted by Biden, will take effect in 60 days
The Biden administration will allow employers to invest pension money in green industries that could lead to lower returns for Americans.
The measure announced Tuesday reverses a rule imposed by Trump in 2020 that required employers to prioritize profits when making 401(k) investments.
The new rule introduced by the US Department of Labor will allow investors in retirement plans to focus on ESG investing, which considers the environmental and social impacts of investments.
The change comes as the average 401(k) in the US is down about 25 percent this year, to around $34,000, caused in large part by inflation.
Republicans have opposed the growing popularity of ESG investing; many argue that the concept goes against the main objective of investing, which is to maximize returns.
Change advocates suggest that companies can be more profitable than their competitors when they treat their workers fairly and think about environmental impact.
The Biden administration will loosen the rules to allow employers to invest pension money in green industries that could lead to lower returns for Americans.
The change reverses a rule imposed by Trump in 2020 that restricted employers to investment strategies that prioritized financial interests.
This easing of the rules was first proposed by President Biden after he directed government agencies to assess weather-related risk to retirement and pension investments last year.
The change will take effect in 60 days, the Labor Department said Tuesday.
The Trump administration issued regulations in 2020 that had a “chilling” effect on the acceptance of retirement plans in the workplace, even if the ESG fund had provided a financial benefit, he said.
“Climate change and other environmental, social and governance factors may be helpful to plan investors as they make decisions about how best to grow and protect the retirement savings of American workers,” said Assistant Secretary for Benefits Security for Employees, Lisa Gomez.
USDOL’s Lisa Gomez said climate change would be a useful consideration for investors
According to a online survey Conducted by Sphere, a climate-friendly 401(k) fund, some 73 percent of more than 200 respondents said they found increasing savings an “extremely important” consideration when it came to pensions.
By comparison, just 17% said investing in a better climate future was extremely important, and almost 9% said it was not important at all.
The change is welcome news for those involved in driving ESG investing, which includes major financial institutions and, in particular, BlackRock, which is in charge of the retirement plan assets of around 35 million Americans.
BlackRock and other major asset managers have been incorporating ESG investments in a public display of their sustainability commitment that GOP finance officials say eschews US energy but welcomes China-linked companies with open arms.
It is the world’s largest asset manager, managing around $10 trillion.
Earlier in the year, Florida Governor Ron DeSantis called ESG investing “wake up capital.” In June, DeSantis proposed legislative changes to prevent state fund managers from considering ESG factors when investing state money.
“We are protecting Floridians from wake capital and asserting the authority of our constitutional system over ideological corporate power,” DeSantis said in June.