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Senate clears resolution to nullify ‘ESG’ rule; Biden plans veto

Critics of rule want investments to focus on returns

Rep. Andy Barr, R-Ky., sponsored the joint resolution that would nullify the Labor Department rule.
Rep. Andy Barr, R-Ky., sponsored the joint resolution that would nullify the Labor Department rule. (Tom Williams/CQ Roll Call file photo)

The Senate on Wednesday cleared a resolution that would disapprove of a Labor Department rule allowing retirement plans to consider climate factors in their investment decisions, setting the stage for the first veto of President Joe Biden’s presidency.

The Senate’s 50-46 vote on the resolution comes one day after the House voted 216-204 to pass it. The White House said Biden would veto the measure if it came to his desk. The resolution would nullify a Labor Department rule that allows retirement plans to consider environmental, social and governance factors in their investment decisions.

“The rule reflects what successful marketplace investors already know — there is an extensive body of evidence that environmental, social, and governance factors can have material impacts on certain markets, industries, and companies,” the White House said in a statement of administration policy.

“DOL issued the final rule after receiving extensive feedback from the public that revealed that the previous Administration’s rules in this area created problematic impediments for plan fiduciaries seeking to act in the best interests of America’s workers when making investment decisions.”

The department finalized the rule last year and it took effect in January. The department sought to strike a compromise, balancing between financial services companies that wanted clear rules and plan sponsors that didn’t want to be required to consider ESG factors. The rule reversed Trump administration changes to the implementation of 1974 legislation known as the Employee Retirement Income Security Act, a law that governs a broad range of retirement and health benefit plans. 

The Biden administration, investors and other ESG proponents had said the Trump administration changes created a “chilling effect” on sustainable investments’ inclusion in retirement plans.

But the rule has become a rallying point for Republicans who say those responsible for retirement funds should make investment decisions based solely on whether they enhance retirement savings. Rep. Andy Barr, R-Ky., sponsored the House resolution, and Sen. Mike Braun, R-Ind., introduced a similar resolution in February that had the support of 48 Republicans and one Democrat, Sen. Joe Manchin III of West Virginia.

Senate Minority Leader Mitch McConnell, R-Ky., voiced his support on the Senate floor Tuesday, saying the rule would allow fiduciaries to “pursue left-wing political initiatives instead of trying to maximize the return for their clients.”

The House Education and the Workforce Committee also circulated statements Tuesday from a range of groups opposed to the rule. 

At least 25 Republican attorneys general sued Labor Secretary Marty Walsh and the Labor Department in January. Their complaint argued that the rule undermines key protections for retirement savings and oversteps the department’s statutory authority under the 1974 law.

The lawsuit asked the court to toss the rule, calling it “arbitrary and capricious” and a violation of both ERISA and the Administrative Procedure Act.

“The 2022 Investment Duties Rule contravenes ERISA’s clear command that fiduciaries act with the sole motive of promoting the financial interests of plan participants and their beneficiaries,” according to the lawsuit filed in the U.S. District Court for Northern District of Texas, Amarillo division.

The plaintiffs include Texas, Florida and West Virginia; oilfield services company Liberty Energy; Western Energy Alliance, an oil and natural gas trade association; and James R. Copland, a senior fellow at the Manhattan Institute who is a participant in a retirement plan subject to ERISA.

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