US president Joe Biden has said he will veto a move by Republican politicians to undo a rule allowing retirement plans to consider ESG factors in investment decisions.
In a vote split mostly along party lines, members of the Republican-controlled House voted by 216-204 on Tuesday to approve a resolution that would nullify a recently introduced Department of Labor (DoL) rule allowing retirement plan fiduciaries to consider climate and other ESG factors when they make investment and voting choices.
One Democratic Congressman – Maine’s Jared Golden – voted in favour of the resolution, which also has the backing of West Virginia Democrat senator Joe Manchin.
The Senate will also vote on the resolution this week and the vote must pass in order to be sent to Biden. However, its supporters need the backing of a second Democrat or independent senator in order to achieve a majority. This vote could come from Montana’s Jon Tester, who told Politico on Tuesday that he was still reviewing the policy.
Manchin, a habitual troublemaker for Senate Democrats, told Fox News that it was “irresponsible for the Biden administration to jeopardise retirement savings for more than 150 million Americans for purely political purposes”. He said the proposed rule would endanger retirement incomes for American families.
In a statement on Monday, the White House said president Biden would veto the resolution if it was presented to him, which would prevent it from coming into effect.
In the statement, the White House noted that the 2022 rule does not mandate fiduciaries to make decisions based solely on ESG factors. “The rule simply makes sure that retirement plan fiduciaries must engage in a risk-and-return analysis of their investment decisions and recognises that these factors can be relevant to that analysis,” it continued.
In November, the DoL introduced the Prudence and Loyalty in Selecting Plan Investments and Exercising Shareholder Rights rule, which reversed Trump-era barriers to workplace schemes considering ESG in their investments and voting.
Rules laid down during Trump’s presidency, which came into effect in January 2021, required workplace pension schemes to solely consider financial factors when selecting investment funds or voting proxies.
Following consultation, however, the DoL concluded that they “unnecessarily restrained plan fiduciaries’ ability to weigh environmental, social and governance factors when choosing investments, even when those factors would benefit plan participants financially”.
The rule has also come under legal attack, with a lawsuit filed by 25 state attorney generals led by Texas Attorney General Ken Paxton seeking to block the rule.
PRI CEO David Atkin also wrote to house speaker Kevin McCarthy on Tuesday, encouraging him to reconsider the proposal of congressional disapproval. In the letter, Atkin said the proposal “does not match the level of deliberation needed to consider these nuanced questions” undertaken by asset managers in their work.
The letter also notes that the rule does not require investors to overweight ESG factors or break with their fiduciary duties, and that 97 percent of the 20,000 respondents to the DoL consultation supported the proposal.
US SIF also raised concerns about the resolution. Managing director Bryan McGannon said the rule was “a sensible policy allowing retirement plan fiduciaries to consider all financially relevant information when making investment decisions”.
He continued: “This benefits plan participants and it ends the retirement policy pendulum between administrations. These gains are undermined by today’s vote to kill the rule.”