The beauty of the stock market is that no one can tell you where to put your money—until now. Last month the Obama administration’s Labor Department issued Interpretive Bulletin 2015-01, which tells pension funds what factors to use when choosing investments, including climate change. Only a few tax lawyers noticed, but with U.S. pensions at $9 trillion, this is a gross power grab that will hurt the retirees it claims to protect.
In 2008 Labor issued guidance for parts of the Employee Retirement Income Security Act of 1974, affectionately known as Erisa, that environmental, social and government factors—for instance, climate change—may affect the value of investments.
Most pension fund managers, who have a fiduciary responsibility to maximize returns, have assumed that such factors can act as a tie breaker, if all other things are equal. The thinking was: Thanks for the heads up about the climate, but leave the investing to us. Managers could still weigh other factors above climate change without getting sued.
No more. According to the Oct. 26 bulletin from Labor: “Environmental, social and governance issues may have a direct relationship to the economic value of the plan’s investment. In these instances, such issues are not merely collateral considerations or tiebreakers, but rather are proper components of the fiduciary’s primary analysis of the economic merits of competing investment choices.”
The word “primary” is the rub. Investing is hard, as anyone who has bought a stock only to watch it crater 20% a week later knows. There are thousands of factors that influence daily stock prices—product, profits, management, competition, interest rates, global unrest, government interference, technology and so on.
You may have an opinion on climate change, I may have another. If it were settled science, would we need marching orders from Labor? Al Gore invests using his thesis on sustainable capitalism, and good for him. Just don’t force that on the rest of us.