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Illustration: Sarah Grillo/Axios

The case for sustainable investing — or ESG, for environmental, social, and governance — is a pretty simple one: Long-term investors have a clear financial incentive to back companies that will thrive over the long term. Such companies need to be well governed, have good relations with their stakeholders, and be well positioned to help humanity minimize our onrushing environmental catastrophe.

Why it matters: While the Obama administration was well disposed towards such investing, the Trump administration isn't. To sum up the thesis in three letters: ESG, for environmental, social, and governance.

  • A proposed new rule from the Labor Department would effectively ban pension-plan administrators from making any kind of ESG offering part of the default option in a 401(k) plan, and would discourage them from having any ESG options at all.

What they're saying: "When investments are made to further a particular environmental or social cause, returns unsurprisingly suffer," wrote Labor Secretary Eugene Scalia in an 0p-ed announcing the new rule.

  • The rule itself claims that it will have a positive economic effect, saying that "investments' returns will generally tend to be higher over the long run" as a result of ignoring ESG factors.
  • But, but, but: ESG funds outperform their peers.

Between the lines: Scalia doesn't have a lot of support. The asset management industry is naturally wary of this rule, because it creates more work and potential liability for pension fund managers. And even his natural bedfellows are wary.

  • The U.S. Chamber of Commerce initially reacted positively to the rule, but when I asked them for comment, I was put in touch with Chantel Sheaks, the executive director for retirement policy, who praised only the fact that the Department of Labor was implementing a 30-day comment period.
  • The American Petroleum Institute represents the companies most excluded by ESG policies. But the API's Aaron Padilla, who covers ESG policy there, told Axios that he wants the government to "encourage the consideration of ESG as it is linked to companies' financial performance."

My thought bubble: This rule looks like lame-duck hippie-punching from a beleaguered administration wanting to throw a bone to climate-change deniers.

The bottom line: As the Environmental Defense Fund's Gabe Malek told Axios: "ESG is a key part of fiduciary duty in the EU. The U.S. is just lagging behind other countries."

Go deeper

In photos: D.C. and U.S. states on alert for pre-inauguration violence

National Guard troops stand behind security fencing with the dome of the U.S. Capitol Building behind them, on Jan. 16. Photo: Kent Nishimura / Los Angeles Times via Getty Images

Security has been stepped up in Washington, D.C., and state capitols across the U.S. as authorities brace for potential violence this weekend.

Driving the news: Following the Jan. 6 insurrection at the U.S. Capitol by some supporters of President Trump, the FBI has said there could be armed protests in D.C. and in all 50 state capitols in the run-up to President-elect Joe Biden's inauguration Wednesday.

14 hours ago - Politics & Policy

The new Washington

Illustration: Sarah Grillo/Axios

The Axios subject-matter experts brief you on the incoming administration's plans and team.

Rep. Lou Correa tests positive for COVID-19

Lou Correa. Photo: Tom Williams/CQ-Roll Call, Inc via Getty Images

Rep. Lou Correa (D-Calif.) announced on Saturday that he has tested positive for the coronavirus.

Why it matters: Correa is the latest Democratic lawmaker to share his positive test results after last week's deadly Capitol riot. Correa did not shelter in the designated safe zone with his congressional colleagues during the siege, per a spokesperson, instead staying outside to help Capitol Police.