On Monday, President Joe Biden vowed to veto a joint resolution working its way through Congress this week that would nullify the administration’s recent rule allowing retirement and pension fund managers to choose investments based on environmental, social and governance (ESG) considerations.
Under federal ERISA law, asset managers have a fiduciary responsibility to their clients to base investment decisions on their expected financial profitability alone, but a Labor Department rule that went into effect last month now gives fund managers the freedom to pick investments based on anticipated ESG benefits, as well.
A new joint resolution (H.J. Res. 30), introduced by Rep. Andy Barr (R-Ky.) and supported on the Senate side by Sen. Mike Braun (R-Ind.), would void Biden’s rule and, thus, require asset managers to return to investing for profitability only:
“Providing for congressional disapproval under chapter 8 of title 5, United States Code, of the rule submitted by the Department of Labor relating to ‘Prudence and Loyalty in Selecting Plan Investments and Exercising Shareholder Rights’.
“Resolved by the Senate and House of Representatives of the United States of America in Congress assembled, That Congress disapproves the rule submitted by the Department of Labor relating to ‘Prudence and Loyalty in Selecting Plan Investments and Exercising Shareholder Rights’ (87 Fed. Reg. 73822 (December 1, 2022)), and such rule shall have no force or effect.”
“If the President were presented with H.J. Res. 30, he would veto it,” a policy statement published by the White House on Monday states, noting that the Biden Administration “strongly opposes” the joint resolution.
As the White House statement acknowledges, the current rule allows investment in climate and other social goals, on the basis that they yield a non-financial form of return on investment:
“This rule clarifies that retirement plan fiduciaries may consider climate change and other environmental, social, and governance factors in selecting retirement investments and exercising shareholder rights, when those factors are relevant to the risk and return analysis.”
“The 2022 Biden-Harris Administration rule makes clear that ERISA fiduciaries can consider factors such as corporate accountability and transparency, climate, and liability risks if they find them relevant to the analysis of an investment’s risk and return, in the same way that they would prudently consider other relevant factors.”
H.J. Res. 30 is expected to receive a House vote, then a Senate vote, in the upcoming days.
Senate Republican Leader Mitch McConnell (R-Ky.) issued a statement Tuesday promising that he’ll proudly support H.J. Res. 30 when it makes its way to his chamber of Congress:
“I’m grateful to my colleague from Indiana, Senator Braun, and to my friend and fellow Kentuckian, Congressman Andy Barr, for leading a bipartisan resolution in both Houses to make sure that Americans’ retirement accounts are about one thing: maximizing returns on investments.
“And I’ll be proud to support this commonsense measure later this week.”
While House passage is likely, the Senate vote is anticipated to be close. Senate Republicans are counting on support from moderate Democrats.
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