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Retirement Hacks: ESG in your 401(k): Is mixing your beliefs with your investments a bad idea?

The Department of Labor wants to take a closer look at environmental, social and governance (or ESG) investing and you might, too, but it takes some work to find synergy between your investments and your conscience. 

Retirement Tip of the Week: Although aligning investment goals with personal beliefs can feel rewarding, it takes time and serious attention to detail. If you want to incorporate ESG into your retirement plans, do your due diligence. 

The DOL, which oversees employer-sponsored retirement accounts, recently proposed broadening the investment options under retirement plans to include environmental, social and governance considerations. 

The rule is a follow-up to President Biden’s proposal in May and would “remove the barriers” the prior administration created when it focused solely on financial factors of investment options, the agency said

This new rule would “bolster the resilience of workers’ retirement savings and pensions by removing the artificial impediments — and chilling effect on environmental, social and governance investments — caused by the prior administration’s rules,” Ali Khawar, acting assistant secretary for the Department of Labor’s Employee Benefits Security Administration, said in a statement. “A principal idea underlying the proposal is that climate change and other ESG factors can be financially material and when they are, considering them will inevitably lead to better long-term risk-adjusted returns, protecting the retirement savings of America’s workers.” 

See: ‘A place where if your values aligned… you’d put your money in’: Harry and Meghan push an ESG fintech 

But getting started in ESG investing may not seem easy. First, investors need to understand what personal beliefs they’re actually trying to align their investments with (for some, it could be funds that follow religious customs, while others may want to invest in environmentally-friendly companies) Then they need to find these options. 

Investment firms may have their own funds that focus on ESG. Vanguard, for example, has exchange-traded funds and mutual funds that incorporate this type of investing, including global, U.S.-only and international choices. BlackRock, State Street Global Advisors, and Parnassus Investments are also among the providers of ESG options. There are more than 600 ESG funds and ETFs on the market, amounting to $161 billion in assets, according to Vanguard. 

The name of the fund alone isn’t enough to determine just how well it agrees with a person’s beliefs. Investors, or their financial advisers if they work with one, will have to go beyond the description to look at what companies the funds are actually invested in, and to perhaps even research those companies’ policies and procedures. For example, someone who values environmentalism would want a fund that invests in companies reducing pollution, and someone who wants gun control would not want a fund that invests in companies that produce or distribute weapons. 

Also see: 3 questions to ask your financial adviser if you are serious about sustainable investing

Financial firm MSCI offers a search tool for ESG fund ratings. For example, when looking up Vanguard ESG US Stock ETF (
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Morningstar, a company that provides research, analysis and investment management services, also offers a search tool. When investors search ESG, they’ll find a list of funds pop up, and can filter among ratings and low carbon designation. When they click on the fund, they will see a breakdown of costs and can navigate to the portfolio page where they’ll find a sustainability fund and scores for environmental, social and governance factors. 

ESG is becoming much more popular, not only among investors but companies mentioning it during their corporate earnings calls. Still, it shouldn’t be the only driver in investment selection, wrote Lawrence Cunningham, founder of the Quality Shareholders Group and a MarketWatch contributor. The principles behind ESG investing are “extremely vague” and scores among the options can be “inconsistent.” 

“But the traditional investor has always had to be a generalist, and ESG’s core principles correlate with some venerable aspirations, such as long-term sustainability, constituents in addition to shareholders and proper stewardship,” Cunningham wrote. “In this view, ESG is old wine in new bottles — a new name for a venerable practice.”

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