{"id":103329,"date":"2020-11-02T21:52:04","date_gmt":"2020-11-02T18:52:04","guid":{"rendered":"https:\/\/en.buradabiliyorum.com\/opinion-heres-an-easier-way-to-think-about-esg-investing\/"},"modified":"2020-11-02T21:52:04","modified_gmt":"2020-11-02T18:52:04","slug":"opinion-heres-an-easier-way-to-think-about-esg-investing","status":"publish","type":"post","link":"https:\/\/buradabiliyorum.com\/en\/opinion-heres-an-easier-way-to-think-about-esg-investing\/","title":{"rendered":"#\n  Opinion: Here\u2019s an easier way to think about ESG investing"},"content":{"rendered":"<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_85 counter-hierarchy ez-toc-counter ez-toc-custom ez-toc-container-direction\">\n<p class=\"ez-toc-title\" style=\"cursor:inherit\">Table of Contents<\/p>\n<label for=\"ez-toc-cssicon-toggle-item-6a3ad72841dcc\" class=\"ez-toc-cssicon-toggle-label\"><span class=\"\"><span class=\"eztoc-hide\" style=\"display:none;\">Toggle<\/span><span class=\"ez-toc-icon-toggle-span\"><svg style=\"fill: #dd3333;color:#dd3333\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" class=\"list-377408\" width=\"20px\" height=\"20px\" viewBox=\"0 0 24 24\" fill=\"none\"><path d=\"M6 6H4v2h2V6zm14 0H8v2h12V6zM4 11h2v2H4v-2zm16 0H8v2h12v-2zM4 16h2v2H4v-2zm16 0H8v2h12v-2z\" fill=\"currentColor\"><\/path><\/svg><svg style=\"fill: #dd3333;color:#dd3333\" class=\"arrow-unsorted-368013\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" width=\"10px\" height=\"10px\" viewBox=\"0 0 24 24\" version=\"1.2\" baseProfile=\"tiny\"><path d=\"M18.2 9.3l-6.2-6.3-6.2 6.3c-.2.2-.3.4-.3.7s.1.5.3.7c.2.2.4.3.7.3h11c.3 0 .5-.1.7-.3.2-.2.3-.5.3-.7s-.1-.5-.3-.7zM5.8 14.7l6.2 6.3 6.2-6.3c.2-.2.3-.5.3-.7s-.1-.5-.3-.7c-.2-.2-.4-.3-.7-.3h-11c-.3 0-.5.1-.7.3-.2.2-.3.5-.3.7s.1.5.3.7z\"\/><\/svg><\/span><\/span><\/label><input type=\"checkbox\"  id=\"ez-toc-cssicon-toggle-item-6a3ad72841dcc\" checked aria-label=\"Toggle\" \/><nav><ul class='ez-toc-list ez-toc-list-level-1 ' ><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/buradabiliyorum.com\/en\/opinion-heres-an-easier-way-to-think-about-esg-investing\/#At_worst_it_sacrifices_return_for_social_goals_at_best_its_expensive_active_management\" >At worst, it sacrifices return for social goals; at best it\u2019s expensive active management<\/a><ul class='ez-toc-list-level-4' ><li class='ez-toc-heading-level-4'><ul class='ez-toc-list-level-4' ><li class='ez-toc-heading-level-4'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/buradabiliyorum.com\/en\/opinion-heres-an-easier-way-to-think-about-esg-investing\/#Alicia_H_Munnell\" >Alicia H. Munnell<\/a><\/li><\/ul><\/li><\/ul><\/li><\/ul><\/nav><\/div>\n<p>&#8220;<strong>#<br \/>\n  Opinion: Here\u2019s an easier way to think about ESG investing<br \/>\n<\/strong>&#8221;<\/p>\n<h2 class=\"article__subhead\" itemprop=\"alternativeHeadline\"><span class=\"ez-toc-section\" id=\"At_worst_it_sacrifices_return_for_social_goals_at_best_its_expensive_active_management\"><\/span>\n  At worst, it sacrifices return for social goals; at best it\u2019s expensive active management<br \/>\n<span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p><\/p>\n<div class=\"column column--full article__content\">\n<div id=\"js-article__body\" class=\"article__body article-wrap at16-col16 barrons-article-wrap\" itemprop=\"articleBody\" data-sbid=\"54AD919C-1D39-11EB-9C15-FA9E0A970496\">\n<div class=\"barrons-article-ad-wrapper\">\n<div data-track=\"barrons-article-ad-wrap\" class=\"barrons-article-ad sticky_item\">\n<div class=\"barrons-main-article-ad-target sticky_target body_ad\" aria-hidden=\"true\"><\/div>\n<\/p><\/div>\n<\/p><\/div>\n<p>       The financial services industry seems exercised about the Department of Labor\u2019s <a rel=\"nofollow noopener noreferrer\" target=\"_blank\" href=\"https:\/\/www.federalregister.gov\/documents\/2020\/06\/30\/2020-13705\/financial-factors-in-selecting-plan-investments\" class=\"icon none\">proposed rule <\/a>limiting ESG investing for private pension plans covered by the Employee Retirement Income Security Act of 1974 (ERISA). <\/p>\n<p> The DOL states: \u201cIt is unlawful for a fiduciary to sacrifice return or accept additional risk to promote a public policy, political, or any other nonpecuniary goal.\u201d <a href=\"https:\/\/buradabiliyorum.com\/en\/category\/download-scripts-themes-apps\/\" data-internallinksmanager029f6b8e52c=\"9\" title=\"Download Scripts &amp; Themes &amp; Apps\" target=\"_blank\" rel=\"noopener\">App<\/a>arently, the agency undertook this initiative out of concern that ESG investments were becoming more popular with pension funds. It also wanted to eliminate confusion over DOL\u2019s opinion on this type of investing, which has meandered over the years. <\/p>\n<div class=\"paywall\">\n       Read: Trump Labor Department\u2019s rule discouraging ESG investing in retirement plans is finalized over swell of objections<\/p>\n<p>It\u2019s an easy case to make that pension funds are not the place to accept lower returns to solve the ills of the world. ERISA makes that clear on the private side, and public plans have <a href=\"https:\/\/buradabiliyorum.com\/en\/category\/general\/\" data-internallinksmanager029f6b8e52c=\"3\" title=\"General\" target=\"_blank\" rel=\"noopener\">general<\/a>ly shunned sacrificing returns. Even if not illegal, sacrificing returns raises an agency problem: the people advocating for <a href=\"https:\/\/buradabiliyorum.com\/en\/category\/social-mediaa\/\" data-internallinksmanager029f6b8e52c=\"1\" title=\"Social Media\" target=\"_blank\" rel=\"noopener\">social<\/a> issues \u2014 today\u2019s politicians \u2014 are not the ones who will bear the burden of lower returns: namely, tomorrow\u2019s retirees and taxpayers. Moreover, while such efforts often have powerful emotional appeal, they have no impact on the targeted companies, especially since the most recent incarnation of the \u201cVice Fund\u201d stands ready to buy stocks diverted from standard portfolios. <\/p>\n<p>But some advocates of ESG investing argue that they are not sacrificing return. Rather they contend that nonfinancial factors \u2014 such as a firm\u2019s environmental impact, its relationship with communities where it operates, and its management culture \u2014 are relevant to long-term value. By integrating these ESG factors into existing methods of financial analysis, they believe that investors can reduce risk and earn higher returns, while supporting socially beneficial practices and outcomes. <\/p>\n<p>But, I would argue that ESG is nothing special. When relevant, one would hope that any active manager would take into account a company\u2019s personnel policies, its supply chains, and whether it\u2019s leaking toxic chemicals. The problem is that once an asset manager begins the business of picking stocks, the price goes up. And <a rel=\"nofollow noopener noreferrer\" target=\"_blank\" href=\"https:\/\/onlinelibrary.wiley.com\/doi\/full\/10.1111\/jofi.12048\" class=\"icon none\">study after study <\/a>over decades has shown that, on average, active managers do not produce the returns to cover these fees. That is not to say some firms have not been successful, but on average they are not.<\/p>\n<p>In a <a rel=\"nofollow noopener noreferrer\" target=\"_blank\" href=\"https:\/\/crr.bc.edu\/briefs\/esg-investing-and-public-pensions-an-update\/\" class=\"icon none\">recent study<\/a>, we looked once again at the impact of ESG investing on public plans and concluded that it led to lower returns. As a check on our results, we compared the returns on ESG mutual funds to unrestricted Vanguard funds over 1-year, 5-year, and 10-year periods. With the exception of the short-duration bond funds, the Vanguard funds outperformed their ESG counterparts, often by a considerable margin (see table below). The reason isn\u2019t rocket <a href=\"https:\/\/buradabiliyorum.com\/en\/category\/sciencee\/\" data-internallinksmanager029f6b8e52c=\"5\" title=\"Science\" target=\"_blank\" rel=\"noopener\">science<\/a>: the fees for ESG funds are roughly 80 basis points higher than their Vanguard counterparts. <\/p>\n<div data-layout=\"\n              inline\" data-layout-mobile=\"\" class=\"\n        media-object\n        type-InsetMediaIllustration\n            full-width\n            \n    \n          \n  article__inset\n        article__inset--type-InsetMediaIllustration\n            article__inset--inline\n  \"><\/p>\n<figure class=\"\n        media-object-image\n        enlarge-image\n        renoImageFormat-20201102133902\n        img-inline\n        article__inset__image\n      \" itemscope itemtype=\"http:\/\/schema.org\/ImageObject\"><\/p>\n<div style=\"padding-bottom:71.7949%;\" data-mobile-ratio=\"71.7949%\" data-layout-ratio=\"71.7949%\" data-subtype=\"illustration\" class=\"image-container  responsive-media article__inset__image__image\">\n        <img decoding=\"async\" srcset=\"https:\/\/ei.marketwatch.com\/Multimedia\/2020\/11\/02\/Photos\/NS\/MW-IS681_munesg_20201102133902_NS.jpg?uuid=adc3ad88-1d3a-11eb-a2cc-9c8e992d421e 860w\" sizes=\"860px\" src=\"https:\/\/ei.marketwatch.com\/Multimedia\/2020\/11\/02\/Photos\/NS\/MW-IS681_munesg_20201102133902_NS.jpg?uuid=adc3ad88-1d3a-11eb-a2cc-9c8e992d421e\" data-enlarge=\"https:\/\/ei.marketwatch.com\/Multimedia\/2020\/11\/02\/Photos\/NS\/MW-IS681_munesg_20201102133902_NS.jpg?uuid=adc3ad88-1d3a-11eb-a2cc-9c8e992d421e\" alt=\"\" title=\"\"><\/div><figcaption class=\"wsj-article-caption article__inset__image__caption\" itemprop=\"caption\"><\/figcaption><\/figure>\n<\/div>\n<p>       Hence, regardless of how one views ESG investments \u2014 lower returns for social goals or simply high-price active management \u2014 they probably do not belong on 401(k) platforms, much less as part of a default portfolio. <\/p>\n<div data-layout=\"\n              inline\" data-layout-mobile=\"\" class=\"\n        media-object\n        type-InsetCommentingPromo\n            \n            inline\n  article__inset\n        article__inset--type-InsetCommentingPromo\n            article__inset--inline\n  \"><\/p><\/div>\n<\/p><\/div>\n<\/div><\/div>\n<p><\/p>\n<div class=\"byline article__byline\">\n<p>      <span>By<\/span><\/p>\n<div class=\"author  hasMenu\" data-scrim='{\"type\":\"author\",\"header\":\"Alicia H. Munnell\",\"subhead\":\"The Wall Street Journal\",\"list\":[]}' itemscope itemprop=\"author\" itemtype=\"http:\/\/schema.org\/Person\">\n<h4 itemprop=\"name\"><span class=\"ez-toc-section\" id=\"Alicia_H_Munnell\"><\/span>Alicia H. Munnell<span class=\"ez-toc-section-end\"><\/span><\/h4>\n<\/p><\/div>\n<\/div>\n<blockquote>\n<p style=\"text-align: center;\">For forums sites go to <span style=\"color: #ff9900;\"><a style=\"color: #ff9900;\" href=\"https:\/\/forum.buradabiliyorum.com\/\" target=\"_blank\" rel=\"noopener noreferrer\">Forum.BuradaBiliyorum.Com<\/a><\/span><\/strong><\/p>\n<\/blockquote>\n<blockquote>\n<p style=\"text-align: center;\"><strong>If you want to read more <a href=\"https:\/\/buradabiliyorum.com\/en\/category\/news\/\" data-internallinksmanager029f6b8e52c=\"2\" title=\"News\" target=\"_blank\" rel=\"noopener\">News<\/a> articles, you can visit our <span style=\"color: #ff9900;\"><a style=\"color: #ff9900;\" href=\"https:\/\/en.buradabiliyorum.com\/news\/\" target=\"_blank\" rel=\"noopener noreferrer\">News category.<\/a><\/span><\/strong><\/p>\n<\/blockquote>\n<p><span style=\"color: black;\"><a style=\"color: #ff9900;\" href=\"http:\/\/www.marketwatch.com\/news\/story.asp?guid=%7B54AD919C-1D39-11EB-9C15-FA9E0A970496%7D&#038;siteid=rss&#038;rss=1\" target=\"_blank\" rel=\"noopener noreferrer\">Source<\/a><\/span><\/p>\n","protected":false},"excerpt":{"rendered":"<p>&#8220;# Opinion: Here\u2019s an easier way to think about ESG investing &#8221; At worst, it sacrifices return for social goals; at best it\u2019s expensive active management The financial services industry seems exercised about the Department of Labor\u2019s proposed rule limiting ESG investing for private pension plans covered by the Employee Retirement Income Security Act of&#8230;<\/p>\n","protected":false},"author":1,"featured_media":103330,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"fifu_image_url":"","fifu_image_alt":"","footnotes":""},"categories":[70897],"tags":[],"class_list":["post-103329","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-news"],"_links":{"self":[{"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/posts\/103329","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/comments?post=103329"}],"version-history":[{"count":0,"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/posts\/103329\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/media\/103330"}],"wp:attachment":[{"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/media?parent=103329"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/categories?post=103329"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/tags?post=103329"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}