Trump administration pushes a rule to limit green investing

People who choose to invest retirement money in environment-friendly funds could find themselves with fewer options if a proposed rule from the Trump administration takes effect.

The rule, opposed by more than 130 fund management and financial advisory firms, would require fund managers who oversee pension and 401(k) plans to always put financial considerations ahead of other goals — even if investors choose to risk a smaller return by avoiding investments that conflict with their personal values.

The issue concerns so-called ESG investing — environment, social and governance — a fast-growing investment approach that allows fund managers to tailor products to investors who consider themselves socially conscious.

Opponents in the fund industry say the Trump administration is trying to rush the rule change through, giving the public scant chance to comment.

The proposal was submitted by the Employee Benefits Security Administration, an arm of the U.S. Department of Labor, headed by Eugene Scalia, son of late Supreme Court Justice Antonin Scalia.

Jon Hale, director of ESG research for the Americas at Chicago-based Morningstar Inc., told Bloomberg the proposed rule is so “shoddily constructed� that it’s unlikely to withstand legal scrutiny.

“It has significant implications for the retirement savings of millions of Americans, yet the DOL saw fit to allow only the shortest possible time for comment and now seeks to finalize it before the current administration gets tossed out of office,� Hale said. “In a normal process, such overwhelming opposition would send regulators back to the drawing board.�

The government is “moving at warp speed� to push through the rule, said Bryan McGannon, director of policy and programs at US SIF, a Washington-based group that supports sustainable investment businesses. It typically takes 18 months, not 4½ months, for an “impactful� rule change like this one, he said, adding that the administration may be violating the Administrative Procedure Act in the attempt.

“It’s clear the Labor Department is not taking the public comment process seriously,� McGannon said. “Our letter alone had six or seven studies that contested the underlying arguments. Across the financial services world, from huge asset managers to small sustainable-investment firms, there has been enormous opposition.�

Returns on ESG funds vary widely, depending on what sectors and companies are included in the funds.

The philosophical battle pits those who believe the highest financial return should always be the No. 1 goal from a fund against those who believe investors should be allowed more say over where their money goes.

Should the rule go through, it’s likely to upend the strategies of investment fund managers and could damage funds that specialize in ESG.

“You can’t simply disentangle ESG from the risk-and-return analysis in a 21st century investment process,� said Jonathan Bailey, head of ESG investing at Neuberger Berman Group.

Times staff writer Russ Mitchell contributed to this report.