Top fund firms oppose planned U.S. roadblock to green retirement funds

[July 31, 2020]  By Ross Kerber

BOSTON (Reuters) - Top asset managers including Vanguard Group, State Street Corp <STT.N> and Franklin Resources <BEN.N> have urged the Trump administration to reconsider proposed investment rules that would make it harder for retirement plans to use socially focused funds like those that invest in renewable energy.

Letters to the U.S. Labor Department from firms with assets approaching $10 trillion show how the finance industry has embraced causes once seen as distractions. Representatives of the firms showed the letters to Reuters on Thursday.

The department in June had proposed requiring retirement plan administrators to pick investments only on financial considerations.

It would bar them from using funds or vehicles focused on environmental, social or governance (ESG) criteria where the goal is to "subordinate return or increase risk for the purpose of non-financial objectives," as officials put it in a press release.

Investor interest in ESG investing has exploded. The performance of the funds has matched or often outperformed traditional products, especially in recent years as fossil fuel company shares have lagged other sectors.

Comment letters to the department were due Thursday and include one from the U.S. Chamber of Commerce, the largest business trade group, stating it supports the "underlying principle" of the proposal while suggesting language changes.

Big fund firms were more skeptical. "We see no basis to single out ESG products for enhanced regulatory scrutiny," wrote Vanguard, the largest mutual fund company, in a letter provided by a spokeswoman. Vanguard suggested the Labor Department require more disclosures instead.

Franklin Resources wrote that the changes "would lead to confusion on the scope of ESG investments, increase the burden of implementation costs, heighten the litigation risk faced by fiduciaries, and limit investor choice."

State Street's asset-management arm urged the Department to withdraw the proposed rule and instead work with stakeholders to add "the benefits of value-driven consideration of ESG factors" to pension plans.

(Reporting by Ross Kerber in Boston; Editing by David Gregorio)

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