The ESG performance paradox
ESG is such a broad concept that it risks becoming an excuse for fund managers to underperform their benchmarks while also charging higher fees
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THE United States Department of Labor's (DOL) recent actions have cast a spotlight on the curious logic underpinning the case for environmental, social, and governance (ESG) investing.
More than 8,700 commenters wrote in July 2020 largely to condemn a new rule proposed by the DOL that would limit the ability of most employee retirement plans to select investments based on ESG factors. But the DOL's move is well-founded, and it's not surprising that many of the scathing critiques, accusing the DOL of everything from perpetuating racism to submitting to political interference, came from active fund managers.
The truth is, ESG is such a broad and haphazard concept that without strong fiduciary standards, it risks becoming a convenient excuse for those same fund managers to underperform their benchmarks while also charging higher fees.
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