Environmental, social and governance concerns are playing a bigger role in influencing how investors allocate the money they oversee. That’s welcome. But there’s a risk of mission creep as funds come under pressure to use their financial clout to change society in ways that should remain the domain of lawmakers.

More investors are choosing to put savings into specifically designed ESG funds -- pools, for example, that only take stakes in companies that pledge to reduce their carbon emissions. Assets allocated to such funds grew 37 percent last year, according to figures compiled by Bloomberg Intelligence. That’s fine. But the rest of the asset management industry, the wider world of non-ESG money, including pension funds, is also being drafted into the battle to make the world a better place. So it’s reasonable to ask the latter group: how willing are savers to risk forgoing returns on their nest-eggs to do good?

Take Norway. There, Parliament is considering barring the nation’s sovereign wealth fund from owning gambling stocks. That would force the $1 trillion Norges Bank Investment Management fund to offload its stakes in casino operators such as Las Vegas Sands Corp. and MGM Resorts International.

Now, Norway has strict laws that largely restrict domestic gaming activities to two state-owned companies. And the wealth fund is a state-controlled agency. But veteran investor Mark Mobius argues that casino companies these days are entertainment providers, rather than the sin stocks of the past, and he’s probably right.

In its 2016 annual report, the Norwegian fund calculated that the cumulative effect of screening out weapons makers, coal producers and the like on ethical grounds cost it almost 1.9 percentage points in returns over the past decade. But how far should the fund go in sacrificing potential gains from gambling stocks to reflect the government’s moral stance on a pastime most of the world deems ethically legitimate? The fund, after all, has a fiduciary duty to its clients.

Cliff Asness, the billionaire co-founder of AQR Capital Management, has argued (convincingly) that lower returns from investing with a conscience are to be embraced as necessary proof that ESG considerations are working as they should.

“If the discount rate used by sinful companies isn’t higher as a result of constraints on holding sinful stocks then there was no impact. And, if the discount rate on sin is now higher, the sinful investors make more going forward than otherwise. If the virtuous are not raising the cost of capital to sinful projects, what are they doing? How are they actually affecting the world as they wish to?”

That’s something Japan’s $1.5 trillion Government Pension Investment Fund should think about. It plans to increase its ESG-classified assets to 10 percent of its domestic holdings, up from 3 percent in mid-2017. What hit to returns is it prepared to take?

The problem isn’t just that fund managers are at risk of allocating capital in ways that might erode returns for their possibly unwilling customers. There’s a growing pressure for finance to be at the vanguard of enforcing a range of social priorities, ranging from climate change to improved equality.

We’re all increasingly accountable for doing better, from calling out inequality when we see it to recycling our trash to holding our politicians to account when their actions (or inactions) threaten the environment. Again, that’s a good thing. But given how difficult the immutable mathematics of demographics make providing savings that will last through retirement, should pension plans really be at the forefront of making the world a better place? That is surely the responsibility of government.

To contact the author of this story: Mark Gilbert at magilbert@bloomberg.net

To contact the editor responsible for this story: Edward Evans at eevans3@bloomberg.net

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