Point: ESG — or Socially Responsible — Funds May Soothe Your Conscience but Could Weaken Your Portfolio
By Alicia H. Munnell
I have always been opposed to socially responsible investing — that is, investing with the aim of making a political statement — in the public pension environment.
It’s an easy case to make for a number of reasons. First, while such efforts often have powerful emotional appeal, they have no impact on the targeted companies, especially since vice funds VICEX, stand ready to buy stocks diverted from standard portfolios. Second, public plans are particularly ill equipped to integrate another criterion in their investment decision-making. Third, the people advocating for divestiture — today’s politicians — are not the ones who will bear the burden of lower returns; that would be tomorrow’s retirees and taxpayers.
Until recently social investing wasn’t a real issue for private plans because guidance from the Department of Labor clearly stated that plan trustees or other investing fiduciaries may not accept higher risk or lower returns in order to promote social, environmental, or other public policy causes.
Photo courtesy of Pexels.com.