President Joe Biden issued the first veto of his presidency on Monday in an effort to block Republican-led efforts in Congress to overturn the Department of Labor’s controversial rule to allow retirement plans to consider environmental, social and governance (ESG) factors when making investment decisions.
The Labor Department’s rule, “Prudence and Loyalty in Selecting Plan Investments and Exercising Shareholder Rights,” ended a Trump-era ban on retirement plan investment managers considering ESG factors when making investment decisions.
Back on March 1, Congress acted to overturn the DOL rule, forcing Biden’s hand to veto the measure. The Senate voted 50-46 to pass the Congressional Review Act (CRA), seeking to block the DOL from enforcing the rule. While the Senate is largely Democratic, Sen. Jon Tester (D-MT) and Sen. Joe Manchin (D-WV) voted to pass the resolution. The House of Representatives had approved the CRA earlier on March 1, in a 216 to 204 vote.
That led to Biden’s action today.
“I just vetoed my first bill,” Biden tweeted along with a video message on Monday. “This bill would risk your retirement savings by making it illegal to consider risk factors MAGA House Republicans don’t like. Your plan manager should be able to protect your hard-earned savings—whether Rep. Marjorie Taylor Greene likes it or not,” read the tweet.
In the 21-second video message, a subdued Biden added the following:
“I just signed this veto because the legislation passed by the Congress would put at risk the retirement savings of individuals across the country. They couldn’t take into consideration investments that would be impacted by climate, impacted by overpaying executives. And that’s why I decided to veto it. It makes sense to veto it.”
Congress is unlikely to be able to override the veto, as it would require the support of two-thirds of both chambers.
ARA supports Biden’s veto
The American Retirement Association was quick to back Biden’s veto, releasing a statement shortly after Biden announced it.
“The American Retirement Association applauds President Biden’s veto of a measure that would undermine the ability of retirement plan fiduciaries to freely consider the best interests of retirement plan participants,” the statement begins.
“The President’s veto leaves in place the Prudence and Loyalty in Selecting Plan Investments and Exercising Shareholder Rights regulation that reasserts the basic premise of the Employee Retirement Income Security Act of 1974 (ERISA)—that the financial interests of retirement plan participants and beneficiaries are paramount and may not be subordinated to other considerations,” the statement continues.
“We enthusiastically support the language and intent of this important regulation in codifying that interpretation, and in providing plan fiduciaries the freedom they need and deserve to fulfill their important duties.”
ARA’s Brian Graff
ARA’s statement went on to say that the veto was needed to quash an attempt by slim majorities in Congress to overturn the rule, “one on which thousands of comments from a wide range of perspectives were submitted and considered, and which just took effect January 30, 2023.”
The new regulation, the ARA statement said, sought to resolve the chilling effect of one passed in the waning days of the Trump Administration that professed to support a similar objective, but was seen by many as dismissing the potential financial impact of environmental, social and governance factors on financial returns.
“In contrast with the hyperbole surrounding opposition to the regulation, it does not require consideration of ESG factors—in fact, it clearly states that the only acceptable criteria is the financial best interests of participants and beneficiaries. Further, the regulation clearly states that ESG factors may only be considered if the fiduciary to the plan determines they are relevant to such financial interests,” the ARA statement reads.
“ERISA has long held that the financial interests of retirement plan participants are to be the sole consideration of fiduciaries in selecting and monitoring plan investments,” notes Brian Graff, CEO of the American Retirement Association. “We enthusiastically support the language and intent of this important regulation in codifying that interpretation, and in providing plan fiduciaries the freedom they need and deserve to fulfill their important duties.”
DCIIA statement
The Defined Contribution Institutional Investment Association (DCIIA) also released a statement today, saying that its membership appreciates continued consideration by the Administration and Congress of the proper role of ESG in prudent and loyal investment decision-making, and the community generally supports efforts to remove barriers that may prevent the appropriate and prudent integration of ESG factors into fiduciary decision-making under ERISA.
“DCIIA members also generally support the adoption of policies that recognize that ESG factors can be material to the prudence of an investment and not inconsistent with ERISA’s duty of loyalty and believe that a uniform set of objectives and standards should apply to fiduciary decision-making,” DCIIA’s statement concluded.
Patty Murray also supports the veto
Senator Patty Murray (D-WA), Chair of the Senate Appropriations Committee, was also quick to release her remarks opposing Congress’ resolution and correcting what she says are some Republicans’ misrepresentations of the rule.
“Based on the arguments I have been hearing, I’m not sure everyone that is opposing the Biden Administration’s ESG rule has read the actual policy. Some of the arguments for the resolution overturning this rule simply don’t add up—in fact they are a contradiction,” Murray’s statement read.
“ESG investing is simply the practice of taking into account the environmental, social, and governmental practices of companies that you invest in. So, for instance, just as a hypothetical, if you are against investing in so-called ‘woke causes’—you are actually laying out your own ESG criteria. And here’s the thing—the Biden Administration rule would allow that.”
Murray continued to says that the Biden rule is fundamentally neutral on how ESG factors are taken into consideration so long as the investment fund is meeting its fiduciary obligations to its beneficiaries. “I’m not sure everyone gets that—because the fact of the matter is, some of the same people who are railing against this rule, and against ESG investing, have advocated for positions that essentially are ESG investing,” Murray said.
She pointed to Republicans pushing for legislation to protect local and state governments that divest from companies based on their policies towards Israel as an example. “That is a form of ESG investing,” she said.
“It’s also worth noting, if you manage a retirement plan for a faith-based organization and you want to make sure you are investing in accordance with your client’s faith—that too would be ESG investing.”
DeSantis coalition dismisses ESG investing as “fraud”
Last Thursday, Florida Gov. Ron DeSantis, along with an alliance of 18 other governors, dismissed ESG investing as “fraud” in a statement that accused the Biden Administration of “destabilizing the American economy.”
The Republican governors signed a joint statement in a new alliance led by Gov. DeSantis, including Alabama, Alaska, Arkansas, Georgia, Idaho, Iowa, Mississippi, Missouri, Montana, Nebraska, New Hampshire, North Dakota, Oklahoma, South Dakota, Tennessee, Utah, West Virginia, and Wyoming—all who accuse President Joe Biden of threatening the retirement security of Americans workers on behalf of a “woke” agenda.
“The proliferation of ESG throughout America is a direct threat to the American economy, individual economic freedom, and our way of life, putting investment decisions in the hands of the woke mob to bypass the ballot box and inject political ideology into investment decisions, corporate governance, and the everyday economy,” said the statement.
Back in late January, over two dozen states sued the Biden Administration in an effort to halt the ESG final rule from taking effect.
Utah Attorney General Sean Reyes and Texas Attorney General Ken Paxton filed the lawsuit in a federal district court in Texas on Jan. 26 asking the court for a preliminary injunction to stop the rule from going into effect on January 30. The lawsuit also seeks “permanent relief in the form of a declaration that the ESG Rule violates the APA and ERISA and is arbitrary and capricious.”
In the suit, plaintiffs allege that the rule violates ERISA and the Administrative Procedure Act and accuses the Labor Department of overstepping its statutory authority.
In a press statement at the time announcing the filing, Paxton said the rule prioritized “woke Environmental, Social and Governance investing over protecting the retirement savings of approximately two-thirds of the U.S. population.” Paxton also called the move towards sustainable practices illegal on his Twitter account, and said it “sacrifices Americans’ retirement accounts on the altar of woke corporations’ radical leftist agenda.”
SEE ALSO:
• Senate Strikes Down DOL ESG Rule
• DeSantis Forms 19-State Alliance in Latest ESG Attack
• Coalition of 25 States Sue Biden Administration on ESG Final Rule
Veteran financial services industry journalist Brian Anderson joined 401(k) Specialist as Managing Editor in January 2019. He has led editorial content for a variety of well-known properties including Insurance Forums, Life Insurance Selling, National Underwriter Life & Health, and Senior Market Advisor. He has always maintained a focus on providing readers with timely, useful information intended to help them build their business.