President Biden’s administration recently said it would take no action on enforcement regarding a rule issued by the Trump administration that would make it more difficult to offer ESG funds in 401(k) retirement plans.
“ESG funds may, for example, invest in energy firms that aren’t reliant on fossil fuels or in companies that promote racial and gender diversity. Investors poured a record $51 billion into ESG funds last year,” a CNBC report said. “The Trump-era Labor Department rule, issued in 2020, doesn’t explicitly call out or outright forbid ESG funds in 401(k) plans.”
It could be a potential win for ESG funds as demand for these products has surged in recent months. ESG has already proven its mettle against the pandemic last year, providing shelter from the sell-offs in March as well as offering outperformance throughout the year.
“The Trump-era rule requires employers — who make decisions around 401(k) investments — to only consider factors like a fund’s risk and return (rather than characteristics like social or environmental good) when choosing 401(k) funds. Otherwise, employers may invite more legal scrutiny,” the report added further.
Meanwhile, ESG continues its strong run from last year, with the S&P 500 ESG Index up about 36% within the past year. The same index is up about 4% in 2021.
Are the ESG Floodgates Opening?
Biden’s ruling could help a wide variety of ESG ETFs. One fund to consider is the SPDR S&P 500 ESG ETF (EFIV).
In seeking to track the performance of the S&P 500 ESG Index, the fund employs a sampling strategy, which means that it is not required to purchase all of the securities represented in the index. Overall, EFIV gives investors:
- Investment results that, before fees and expenses, correspond generally to the S&P 500 ESG Index.
- Potential ESG core exposure, based on its focus on sustainability criteria and comprehensive market coverage of the flagship core S&P 500 Index.
- A low expense ratio of 0.10%, 27 basis points below the category average.
- A strong 12-month gain of 20%.
For more news and information, visit the ESG Channel.