In a reversal of Trump policies, President Biden’s administration has put forth a proposal to remove certain requirements for retirement fund investing. It’s a big win for ESG funds and asset managers, as it would allow the inclusion of a whole host of funds that were previously frozen out of retirement savings plans.
The rule that the labor department is looking at doing away with restricted investments by retirement plans to only choosing funds based on financial factors, Financial Times reported. There isn’t a strict prohibition against investing in ESG funds, but most employers have steered clear of them to avoid any potential legal difficulties; only 2.9% of employer retirement plans contain any sort of ESG fund at present day.
It’s a rule change that “definitely gives [companies] some comfort that the labour department is not going to come after them if they consider ESG factors like climate risk,” Michael Kreps, a principal at Groom Law Group, told FT. As far as asset managers of ESG funds, “it is a definite win,” Kreps added.
The Department of Labor oversees 401k funds and other retirement plans, and the proposal goes so far as to possibly require retirement savings plan to actively account for climate change when they invest.
“The DoL’s new proposed regulation should dramatically expand the ability for [retirement] plan sponsors to offer funds that focus on or include ESG as investment options for participants,” said Josh Lichtenstein, a partner at law firm Ropes & Gray.
ESGA Offers Broad ESG Investment Opportunities
With increasing interest in ESG and a push for ESG options in new spaces like 401ks, ESG investing is at the forefront of many investors’ minds. A benefit to one segment of ESG investing is a benefit to the whole, and increasing attention to the space by the Department of Labor signals the increasingly important role this particular type of investing is playing in markets.
The American Century Sustainable Equity ETF (ESGA) measures the ESG performance of a company, weighing environmental impact as one of the major factors for qualification. It goes a step beyond, though, and it also looks at the other aspects of ESG, such as turnover of employees and corporate leadership, to name just a few. The fund invests in U.S. large-cap companies with large growth and value potential that rank highly on ESG metrics.
ACI’s proprietary model assigns a score to each security for financial metrics and a separate score for ESG metrics, then combines them for an overall score.
The highest-scoring securities are selected within each sector, creating a portfolio with strong performance and higher ESG ratings than the stocks in the S&P 500 Index.
The fund is a semi-transparent ETF, meaning that allocations are disclosed on a quarterly basis, not daily. As of its last disclosure, ESGA held companies like Alphabet (GOOGL), Home Depot (HD), and Microsoft (MSFT).
ESGA has a total annual fund operating expense of 0.39% and total assets of $149 million.
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