ESG Rule Overturned By Senate, Biden Vows To Veto

On Wednesday, the Senate overturned a Labor Department rule permitting fiduciary retirement fund managers to consider climate change, corporate governance, and other factors when investing pension plan assets.

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There was a 50-46 vote in the Senate to repeal the repeal bill, with two Democratic senators crossing party lines to support it: Sen. Joe Manchin from West Virginia and Sen. Jon Tester from Montana. In states with strong conservative leanings, both of them will be up for reelection next year.

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During the first veto of his presidency, President Biden announced he would veto the Senate's bill if it reaches his desk.

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There was bipartisan support for the House version of this bill on Tuesday, with every Republican and one Democrat voting for it, after which it advanced surprisingly quickly to the Senate version.

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Following the election of the Republican Party in November, Republicans have now vowed to use their new clout in Washington to attack the concept of "woke capitalism" - starting with an all-out assault on the policies that govern environmental, social, and corporate governance, also known as ESG, investments. Socially responsible funds, also known as ESG funds, are designed to attract investors who are socially conscious, and they invest in companies that, for example, are not contributing to climate change or practice good corporate governance.

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During his remarks on the Senate floor Wednesday, Majority Leader Chuck Schumer, D-N.Y., defended the Labor Department rule that went into effect last November and has been criticized by many.

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“The issue is not one of ideological preference - it is about looking at the big picture possible for investors in order to minimize their risks and maximize their returns,” said Schumer. “Why don’t you pay attention to the risks posed by increasingly volatile climate events? ”

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Democrat lawmakers pointed out that the Labor Department rule was voluntary, so fund managers weren't required to comply.

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Instead, it freed them from the previous rules enacted during the Trump administration, requiring managers of federally governed pension funds to limit their investment decisions to what would generate the highest returns, effectively prohibiting them from considering any other factors, including the possibility of generating higher returns.

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The Labor Department's new rule has been criticized by Republicans for making it possible for fund managers to place ideological issues such as climate change ahead of investment returns, in order to undermine 401(k) retirement plans.

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Senator Mike Braun, Indiana's lead sponsor of the bill, argued earlier this month that we shouldn't encourage fiduciaries to make decisions with a low rate of return for ideological reasons.

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Republicans who chair House committees and presidential candidates like Florida Governor Ron DeSantis have put ESG investing policies at the top of their political hit lists. In an effort to re-energize the populist economic sentiment championed by former President Trump, Wall Street’s ESG investing policies have been put at the top of their political hit lists.

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There is also a small army of conservative nonprofits and advocacy groups that have backed the anti-ESG campaign, many of which are linked to wealthy GOP political contributors and fossil fuel companies.

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Funded by donors, organizations such as the 1792 Exchange and Consumers' Research have launched ad campaigns criticizing top investment firms such as BlackRock, Vanguard, and State Street.