Bocconi Students for Sustainable Finance

Biden zaps the power from Trump’s ESG rules.

During the last decade, ESG principles have taken considerable space into the considerations of multiple investors, making it crucial for countries to make and adapt their policiesWhile during a mandate, these policies are consistent, they can drastically change between two leaders. To better understand the idea, let us zoom into the United States.  

Between his policies on offshore drilling and exiting the Paris agreement, the Trump bureau shows a manifest skepticism regarding climate change. Another example of this skepticism has to be Trump’s administration rule to complicate the use of ESG funds in 401(k) plans. These plans are a defined contribution retirement account allowing employees to save some of their salaries in a tax advantaged way. Only 3% of the 401(k) plans have ESG funding. The Trump administration ought to make this already cumbersome process even slower by changing the requirements investors consider allocating such funds.

In fact, the vision still in place in the United States is that sustainability goes against efficiency and profits. Therefore, the rule implemented by the Trump bureau allows investors to look at ESG only if it enhances returns and requires fiduciaries assessing that ESG investments have been made only based on “objective risk-return criteria”. The goal behind this policy is to drive away investors from any ESG related project.

This decision by the Trump bureau has not been welcomed by many politicians and environmentalists stating that it is merely “inconsistent federal rules … putting cold water on ESG funds’ already limited uptake”.

Because of the feedback received and the change of administration, the agency is currently reviewing the rule to ultimately “suspend, revise or rescind it” as it is inconsistent with Biden’s bureau.

The new administration is currently revisiting Trump’s rule, showing a real commitment to the cause. In fact, in January 2021, an executive order titled “Protecting public health and the environment and restoring science to tackle the climate crisis” has been issued. One of its main objectives is to get rid of the inconsistencies tackled previously, including ESG investments in the 401(k) plans.

Sources:  

https://www.cnbc.com/2021/03/10/biden-administration-wont-enforce-trump-era-esg-rule-for-401k-plans.html#:~:text=Trump%20ESG%20rules,may%20invite%20more%20legal%20scrutiny.  

https://www.cnbc.com/2021/03/10/biden-administration-wont-enforce-trump-era-esg-rule-for-401k-plans.html#:~:text=Trump%20ESG%20rules,may%20invite%20more%20legal%20scrutiny.  

https://www.ft.com/content/abfa7a6f-79e3-4abd-9aee-93d99384ef36  

Author: Samia Ismaili

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Biden zaps the power from Trump’s ESG rules.

During the last decade, ESG principles have taken considerable space into the considerations of multiple investors, making it crucial for countries to make and adapt their policiesWhile during a mandate, these policies are consistent, they can drastically change between two leaders. To better understand the idea, let us zoom into the United States.  

Between his policies on offshore drilling and exiting the Paris agreement, the Trump bureau shows a manifest skepticism regarding climate change. Another example of this skepticism has to be Trump’s administration rule to complicate the use of ESG funds in 401(k) plans. These plans are a defined contribution retirement account allowing employees to save some of their salaries in a tax advantaged way. Only 3% of the 401(k) plans have ESG funding. The Trump administration ought to make this already cumbersome process even slower by changing the requirements investors consider allocating such funds.

In fact, the vision still in place in the United States is that sustainability goes against efficiency and profits. Therefore, the rule implemented by the Trump bureau allows investors to look at ESG only if it enhances returns and requires fiduciaries assessing that ESG investments have been made only based on “objective risk-return criteria”. The goal behind this policy is to drive away investors from any ESG related project.

This decision by the Trump bureau has not been welcomed by many politicians and environmentalists stating that it is merely “inconsistent federal rules … putting cold water on ESG funds’ already limited uptake”.

Because of the feedback received and the change of administration, the agency is currently reviewing the rule to ultimately “suspend, revise or rescind it” as it is inconsistent with Biden’s bureau.

The new administration is currently revisiting Trump’s rule, showing a real commitment to the cause. In fact, in January 2021, an executive order titled “Protecting public health and the environment and restoring science to tackle the climate crisis” has been issued. One of its main objectives is to get rid of the inconsistencies tackled previously, including ESG investments in the 401(k) plans.

Sources:  

https://www.cnbc.com/2021/03/10/biden-administration-wont-enforce-trump-era-esg-rule-for-401k-plans.html#:~:text=Trump%20ESG%20rules,may%20invite%20more%20legal%20scrutiny.  

https://www.cnbc.com/2021/03/10/biden-administration-wont-enforce-trump-era-esg-rule-for-401k-plans.html#:~:text=Trump%20ESG%20rules,may%20invite%20more%20legal%20scrutiny.  

https://www.ft.com/content/abfa7a6f-79e3-4abd-9aee-93d99384ef36  

Author: Samia Ismaili