Is The Trump Regime Trying To Screw Up Socially Responsible Investing?

Can you name the Secretary of Labor? Hint: Señor Trumpanzee only Hispanic cabinet member. Still coming up blank? After Andrew Pudzer's nomination was withdrawn after a couple of scandals involving his opposition to the minimum wage, hiring undocumented workers and mistreating workers, Trump substituted Rene Alexander Acosta. Acosta has been relatively quite compared to other Trump appointees, although...

I bet you didn't know that last month the Department of Labor sent a threatening letter to investment advisors. The reactionary regime sent new guidance "aimed at the burgeoning socially responsible investment industry."

The Department of Labor, which oversees retirement-plan funds, published guidelines on Monday that said investments based on environmental, social and governance issues aren’t always a “prudent choice” and that such factors shouldn’t “too readily” be considered as economically relevant by fiduciaries. That differs from 2016 guidance from the Obama administration, which said such plans could consider ESG factors without violating their fiduciary duty, opening the way for more retirees to pursue socially responsible investment strategies.

Under the latest guidelines, fiduciaries must “always put first the economic interests of the plan” and make financial factors the main consideration when evaluating investments. They also require managers to make sure any shareholder-engagement activities are likely to enhance economic value of their investments.

Some in the industry said they were surprised by the announcement and its cautionary tone. “The way they distinguish between investment options in the guidance is overly simplistic,” said Lisa Woll, chief executive of US SIF, the Forum for Sustainable and Responsible Investment. “ESG factors for many investors are considered important financial considerations.”

Though still a relatively new strategy, ESG investing has grown quickly and increasingly available as a strategy for retirement plans and 401(k)s. Socially responsible investments totaled $23 trillion at the start of 2016 and have outpaced growth in total assets under management, according to the Global Sustainable Investment Alliance.

“It is difficult to understand the reasoning” for the new guidance, said Fiona Reynolds, chief executive officer of the United Nations-supported Principles for Responsible Investment, which represents investors with more than $70 trillion in assets. “Markets are in no doubt of the materiality of ESG considerations,” she said, noting the guidance could create confusion for retirement-plan fiduciaries.

ESG investors have seen increasing pushback from business groups, with congressional Republicans last year proposing legislation aimed at making it harder to submit shareholder proposals. The Labor Department’s new guidance said that managers should only engage with companies about corporate governance or environmental and human capital risks when it’s likely that those issues will enhance the economic value of their investment.

“This indicates the need for a well-developed ESG research process centered on financial materiality,” said John Streur, CEO of Eaton Vance Corp.’s Calvert Research and Management, noting that ESG investors have already been moving in that direction.

Alan Grayson is probably the only political leader in America who would refer to Pope Gregory, so... no sense in granting him any anonymity on this one. Besides, he didn't ask for any. "In the year 590," he told me, "Pope Gregory said that greed was a deadly sin. Then in 1987, we heard that greed is good. Now, under the Trumptatorship, greed is mandatory."

I spoke with Lisa Detanna, one of the most brilliant financial investment minds in the country. She told me that "impact or sustainable investing has forced portfolio managers in the traditional lane to look more at the governing issues as well as the more traditional socially responsible investing choices as part of their strategy in investment selection due to the growing demand from the consumer. The key takeaways are that sustainable investing encompasses investment strategies that integrate environmental, social and governance (ESG) factors into investment analysis. Sustainable investing offers much variety, particularly in how strategies are implemented. Research has shown a correlation between using ESG criteria as a part of the investment process and achieving superior returns. Some firms that don’t identify themselves or their investment products as sustainable still take ESG criteria into account within their security analysis."

I spoke with another successful financial advisor who requested anonymity and who told me that "With all the questionable and risky investment products being promulgated recently, it is remarkable that the Department of Labor is focusing on the established and well vetted investment category of SRI.  This really does nothing to protect anyone or improve the safety of retirement assets in any way." This is, in part, a white paper from one Wall Street firm, Raymond James, on the same subject:

Investing with an eye toward promoting social, political, or environmental concerns (or at least not supporting activities you feel are harmful) doesn't mean you have to forgo pursuing a return on your money. Socially responsible investing may allow you to further both your own economic interests and a greater good, in whatever way you define that term.

The concept of putting your money where your mouth is first gained widespread attention during the 1970s, when such highly charged political issues as the Vietnam War and apartheid in South Africa led some investors to try to prevent their money from supporting policies that were counter to their beliefs.

Since then, a wide variety of investment products, such as socially conscious mutual funds, have been developed to help people invest in ways consistent with a personal philosophy. However, individuals aren't the only ones to apply the principles behind socially responsible investing. Many colleges and universities, government pension and retirement funds, and religious groups do so to some extent.

...This is perhaps the best-known aspect of socially responsible investing: evaluating investments based not only on their finances but on their social, environmental, and even corporate governance practices. Screens based on specific guidelines may eliminate from consideration companies whose products or actions are deemed contrary to the public good. Examples of companies that are frequently excluded from socially responsible funds are those involved with alcohol, tobacco, gambling, or defense, and those that contribute to environmental pollution or that have significant interests in countries considered to have repressive or racist governments.

Both individual and institutional shareholders have become increasingly willing to pressure corporations to adopt socially responsible practices. In some cases, having a good social record may make a company more attractive to investors who might not have previously considered it.

Shareholder advocacy can involve filing shareholder resolutions on such topics as corporate governance, climate change, political contributions, environmental impact, and labor practices. Such activism got a boost when the Securities and Exchange Commission adopted the so-called "say on pay" rule as a result of the Dodd-Frank financial reforms. Companies over a certain size must allow shareholders a vote on executive pay at least once every three years. Though the vote is nonbinding, it could give institutional investors a stronger hand in advocating for other interests.

You can imagine why the Trump Regime's Goldman Sachs-heavy character is especially outraged by that particular screen and why it would try to discourage in so forcefully.

A recent development focuses on measuring and managing performance in terms of social benefit as well as investment returns. So-called "impact investing" aims not only to further a social good, but to do so in a way that maximizes efficient use of the resources involved, using business-world methods such as benchmarking to compare returns and gauge how effectively an investment fulfills its goals. In fact, some have made a case for considering impact investing an emerging alternative asset class. Impact investments are often made directly in an individual company or organization, and may involve direct mentoring of its leaders. As a result, such unique investments may be more similar to venture capital and private equity (where the concept of impact investing originated) and may not be highly correlated with traditional assets such as stocks or bonds.

One of the key questions for anyone interested in socially responsible investing is whether to invest broadly or concentrate on a specific issue or area. A narrow focus could leave you overly exposed to the risks of a single industry or company, while greater diversification could weaken the impact that you might like your money to have. Even if you choose to focus on a single social issue, you may still need to decide whether to invest in a specific company or companies, or invest more broadly through a mutual fund whose objective meets your chosen criteria.

For example, as concern about the environment has grown in recent years, investing in green technology has become a prominent element in many socially responsible investing efforts. Generally, the concept (also known as "clean technology" or "cleantech") includes renewable energy (or technologies that can improve the environmental footprint of existing energy sources), clean water, and clean air, as well as technologies that can help reduce overall consumption, particularly of nonbiodegradable substances. Such a broad scope can make it difficult to choose among the myriad investment opportunities, especially if you don't have expertise about a particular field or the time or energy to acquire it. Unless you're familiar with the science behind a specific company's product or service, you might benefit from casting a wider net. Though diversification and asset allocation can't guarantee a profit or eliminate the possibility of loss, they can help you manage the amount of risk you may face from a single source.