GAO Urges Removal Of Roadblocks To ESG Investing In Retirement Plans

ESG (Environmental, Social and Governance) investing roadblocks in retirement plans should be removed, the Government Accountability Office (GAO), the investigative arm of Congress, urged in a report today. “Asset managers and state and municipal plans using ESG strategies report enhanced risk management and other benefits,” the report said.

GAO called upon the Department of Labor to provide clearer information to plan administrators about how to use ESG factors, such as climate risks, executive compensation and workplace safety, to fulfill their fiduciary duties.

The report noted few retirement plans incorporate ESG into their investing strategies. But those that do have found it useful to identify potential risks and opportunities not brought to light by financial analysis, GAO said.

What constitutes ESG is in the eye of the beholder, the report noted, because some issues may be important to investors for moral or ethical reasons, but not be material to an investment’s financial performance.

Investment plans incorporating ESG factors generally had returns that were as good as or better than plans that didn’t, the Congressional researchers found.  Assets under management using ESG factors by retirement funds and other institutional investors grew to $4.7 trillion in 2016, according to a report by the Forum for Sustainable and Responsible Investment cited by the GAO study.

The sum represents a growth to one out of every five total dollars under the direction of professional money managers in ESG vehicles compared to one out of every six dollars two years earlier.

Asset managers told GAO they are not using ESG more often out of regulatory uncertainty and the lack of consistent and comparable data on the impact of individual factors.