ESG Rule Could Get Biden Veto so 401k Managers Can Consider Environment

  • The Senate voted to overturn a Labor Department measure allowing investment managers to make socially and environmentally conscious investing decisions. 
  • Biden is likely to veto the decision. 
  • The vote represents a growing Republican backlash against policies perceived as “woke.” 

Senate Republicans made strides this week in preventing what they call “woke” retirement plan investing for Americans. 

But President Biden will likely use his executive power to veto it.

The Senate passed a resolution on Wednesday to overturn a Department of Labor rule enacted under President Biden that allows retirement plan managers to take environmental, social and corporate governance considerations (ESG) into account when investing Americans’ retirement account dollars. It’s a move Republicans say will prevent investors from forcing their ethical views on Americans.

“The Biden administration wants retirement plan managers to invest people’s retirement funds based not on the best return for the money — nope — based on woke ideology,” Sen. John Barrasso of Wyoming, said on Wednesday. 

Many Democrats, like Sen. Elizabeth Warren, believe the opposite. “Republicans’ hypocritical resolution to nullify @USDOL’s ESG rule ties investors’ hands & would force their extremist views on investors,” she wrote on Twitter following the vote. 

It’s the latest back-and-forth in an ESG debate triggered by former President Donald Trump, who prohibited financial managers from making such considerations when he was in office. After Biden’s Labor Department enacted the measure to reverse that policy, Senate Republicans stood with Trump this week, aided by two Democratic senators. However, the White House has said that Biden will use his first veto as president to protect ESG considerations.

But that will be far from the end of the issue. As CNBC’s Brian Schwartz reported this week, Trump allies and wealthy donors have funded Republicans’ fight against ESG investing. And the Democratic senators who defected for the vote — West Virginia’s Joe Manchin and Montana’s Jon Tester — are both running for re-election in 2024 in states with prominent fossil-fuel industries, as The New York Times noted on Thursday. 

Wall Street is also worried about an ESG backlash. A dozen major financial firms including Blackstone and BlackRock added language to their annual reports recently warning against anti-ESG pressure, Financial Times reported this week. 

It’s becoming a new partisan fight on the “woke” battleground that Republicans have been increasingly standing behind recently, attacking government policies and corporate decisions that they view as being too liberal. 

As Insider’s Juliana Kaplan and Ayelet Sheffey reported last week, congressional Republicans are also reportedly targeting $150 billion in cuts for “woke” spending on issues like education and healthcare. It’s a familiar agenda under new terminology — the plan in question was modeled after proposals from Trump’s former budget chief, eyeing funding levels similar to the Republican Study Committee’s proposed 2023 budget from last year. 

Senate Majority Leader Chuck Schumer argued in an op-ed for The Wall Street Journal this week that Republicans should get behind the principle of choice in a free-market economy, as well as the success of ESG factors for asset managers and financial institutions who have minimized risk and maximized their clients returns, he said. Schumer cited a recent McKinsey study that found that more than 90% of S&P 500 companies publish ESG reports. 

He also pointed out that the rule lets investors and asset managers consider the financial risks posed by “increasingly volatile natural disasters, aging populations, and other threats,” that the public may not consider. 

“The present rule gives investment managers an option,” Schumer wrote. “The Republican rule, on the other hand, ties investors’ hands.”

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