Morningstar’s comment to DOL/EBSA urges the Department to require consideration of ESG factors in pension investments, not discourage it.
Simply stated, the Labor Department’s proposed rule is out of step with the best practices that asset managers and financial advisors use to integrate ESG considerations into their investment processes and selections. Indeed, as we outlined in our recent paper, ESG risk analysis should be part of any prudent investment analysis–and not be called out for special, unique scrutiny.
ESG Analysis in 401(k) Plans Can Help Retirement Savers Manage Risks
In fact, rather than avoiding ESG analysis, we believe that 401(k) plan investment committees should have an obligation to consider ESG risk. Doing so is fundamental to evaluating the long-term performance of an investment.
For instance, firms without a plan to cope with climate change may be caught flat-footed in the face of new regulation or environmental realities. And beyond being an issue of investor preference, human capital management is a financially material concern given the reputational and regulatory risks that companies face if they have poor labor relations. Many large asset managers already integrate ESG factors into their analysis for exactly this reason.