The Trump administration has directed the Department of Labor to evaluate socially responsible investments in retirement plans to determine if those types of funds function in the best interests of investors.
Being questioned is whether the return on investment on socially responsible investments is competitive with less directed investments.
The executive order signed by President Donald Trump in mid-April aims to determine if retirement account investments which include funds aimed at environmental and social causes best serves retirement fund investors. The Department of Labor was given six months to complete its analysis.
Just ahead of the executive order, a senior administration official explained to reporters the focus of the order.
"The fiduciary duty is the hallmark of ERISA (the Employment Retirement Income Security Act of 1974)," the senior administration official said. "We believe it's an essential protection for beneficiaries so that they do have adequate retirement savings, and that the focus of an ERISA plan is on retirement savings, and not other social and political goals."
Spectrem’s 2018 study Investor Perceptions of Socially Responsible Investing asked investors to describe their interest in socially responsible investing. Similar information was included in Spectrem’s DC Participant Insights Series study How Socially Responsible Investing and Taxes Impact Participants’ Attitudes.
According to Investor Perceptions of Socially Responsible Investing, only 25 percent of investors believe socially responsible investments have the potential to result in a greater return than the overall stock market. The same investors were asked if their defined contribution plan offered products for socially responsible investing as a choice and only 40 percent even knew the answer. Thirty-one percent said no, while only 9 percent said yes.
From the DC participant study, interest in socially responsible investing topped out when investors were asked if they would avoid companies which have negative human rights ratings with poor working conditions or inadequate pay. On a 0-to-100 scale, interest in that act rated at 61.22 among all investors with a defined contribution plan.
Regarding actually investing in a socially responsible company, those investors rated their interest at 59.87 for companies which encourage and foster environmentally-friendly practices.
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