In the 1990s the idea of "socially responsible investing" took shape. The initial idea was to use negative screening to avoid companies that traded in "sin" or "vice," such as tobacco companies, gun manufacturers, casinos, and liquor companies. Some people added oil companies to the forbidden category.

Although screening out disfavored firms may have made investors feel virtuous, it didn't affect the fortunes of those firms in a material way. In fact, the "vice stocks" generally outperformed the market as a whole, because those companies tended to be rather profitable, paying generous dividends to their shareholders.

A less constricting version of socially responsible investing has emerged in recent years, one that employs positive screens or themes as well as exclusions. Three categories of factors are involved: environmental, social, and governance (ESG). An environmental focus may look at carbon emissions, water stress, renewable energy, or pollution. Social factors might be diversity, inclusion, labor, employee welfare, or data security. Governance issues might touch upon independent directors, audit standards, women in leadership, and executive compensation.

Companies may be scored for their ESG performance. They may self-report, or data may be gathered by third parties who then sell the data. These scores may be combined with traditional financial analysis tools in determining which companies are likely to have the desired impact while still providing strong returns to shareholders.

There is no shortage of opportunity to invest in mutual funds that have ESG aspects to them. However, such funds are not yet widely available in the nation's 401(k) plans. The Department of Labor recently proposed a ruling that could slow the addition of such funds to retirement plans.

In general, investments must pursue maximum economic benefit for plan participants. Under the DOL rule, fiduciaries will have to justify offering any particular mutual fund, including ESG funds, based only upon pecuniary factors, not social ones. Additionally, the DOL rule prohibits making any ESG fund the default option for plan participants, which would require them to opt out instead of opting in.

The new rule generated a record of more than 1,500 comments, the most the agency has ever had for any proposal. ESG proponents argue that their criteria are likely to lead to lower downside risk for the investments, as companies with higher ESG scores may be able to avoid scandals or other reversals of fortune. The evidence for such a belief is not yet entirely clear. The proponents of ESG investing are worried that the DOL casts a large enough shadow over the strategy that plan fiduciaries will choose to avoid controversy by simply not offering the option.