Biden OVERURNS Trump rule and tells 401k investors to prioritize green investments over profit – 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 under Trump requiring prioritization of profit
- The new rule, brought about by Biden, will come into effect in 60 days
The Biden administration will allow employers to invest pension money in green industries that could provide lower returns for Americans.
The move which was announced on Tuesday reverses a rule imposed by Trump in 2020 that forced employers to prioritize profit when making 401(k) investments.
The new rule introduced by US Department of Labor will allow retirement plan investors 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 around 25 percent this year, around $34,000, caused largely by inflation.
Republicans have been opposed to the growing popularity of ESG investing – many argue the concept goes against the main purpose of investing, which is to maximize returns.
Advocates of the change 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 relax rules to allow employers to invest pension money in green industries that could provide 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 loosening of rules was first proposed by President Biden after he ordered government agencies to assess climate-related risk to retirement and pension investments last year.
The change will come into effect in sixty days, the Department of Labor said on Tuesday.
The Trump administration issued regulations in 2020 that had a ‘chilling’ effect on the uptake in workplace retirement plans, even if the ESG fund would have delivered a financial benefit, it said.
‘Climate change and other environmental, social and governance factors can be useful for plan investors as they make decisions about how to best grow and protect the retirement savings of America’s workers,’ said Assistant Secretary for Employee Benefits Security Lisa Gomez.
Lisa Gomez of the USDOL said climate change would be a useful consideration for investors
According to an online survey conducted by Sphere, a climate-friendly 401(k) fund, around 73 percent of more than 200 respondents said that they found growing savings to be an ‘extremely important’ consideration when it came to pensions.
By comparison, just 17 percent said that investing for a better climate future was extremely important, and nearly 9 percent said it was not important at all.
The change is good news for those involved in pushing ESG investing, which includes major financial institutions and notably 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 show of their sustainability commitment that GOP financial officers say shuns US energy but welcomes Chinese-linked firms with open arms.
It is the world’s largest asset manager and handles about $10 trillion.
Earlier in the year Florida governor Ron DeSantis labelled ESG investing ‘woke 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 woke capital and asserting the authority of our constitutional system over ideological corporate power,’ DeSantis said in June.