US President Joe Biden issued the first veto of his presidency on Monday over a Republican-backed bill that would stop pension fund managers from considering Environmental, Social and Governance (ESG) implications in their investment decisions.
The veto comes as a response to the Republican attempt to overturn a recently enacted Department of Labor (DOL) rule allowing fund managers for the Employee Retirement Income Security Act (ERISA) to include ESG factors in their investment decisions.
Former US President Donald Trump’s administration had already tried to penalise investment fund managers considering ESG in their investment decisions. In June 2020, the DOL under Trump announced a proposed rule that would restrict ESG investing in ERISA, which was finalised later that year.
Under Biden, the DOL has overturned Trump’s decision, allowing funds to consider ESG issues, albeit not requiring them to do so.
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Under the new federal guidelines, fiduciaries making investment decisions for more than 150 million pension funds would be explicitly allowed to consider a company’s approach to climate change, pending lawsuits, and other social issues when investing, rather than focusing solely on profitability and return on investment.
This could allow them to better strategise for future investments, all the while benefiting the environment.
The new bill, however, was not welcomed by Republicans, who used their slim majority in the House of Representatives to get the bill through.
Despite Democrats holding a thin majority in the Senate, the bill made its way to Biden, as two Democrats voted with the Republicans, Sens. Jon Tester of Montana and Joe Manchin of West Virginia. Both are moderates up for reelection next year.
Still, the Democratic President found the bill worthy of his first veto. Why?
Biden disagreed with the Republicans arguing that the DOL rule would force fund managers to sacrifice financial returns to uphold a political ideology and agenda.
Instead, he argued that the bill threatened senior’s savings by “making it illegal to consider risk factors” such as the physical risks of climate change and poor corporate governance, which could impact the future return of the investment.
Democrats argue that the rule doesn’t render ESG considerations compulsory. Rather it allows funds to take ESG factors into account to maximise their profitability and meet their obligations to beneficiaries.
Biden has portrayed the rule as a financial boost to investors that are concerned about climate risk.
I just vetoed my first bill.
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. pic.twitter.com/PxuoJBdEee
— President Biden (@POTUS) March 20, 2023
Announcing his veto on Twitter, Biden blamed “MAGA House Republicans” of risking the population’s life savings.
“There is extensive evidence showing that environmental, social, and governance factors can have a material impact on markets, industries, and businesses. But the Republican-led resolution would force retirement managers to ignore these relevant risk factors, disregarding the principles of free markets and jeopardising the life savings of working families and retirees.”
Sustainable investors welcomed the veto, emphasising how the rule would preserve their freedom of choice for their investments. Margarita Pirovska, Director of Policy at Principles for Responsible Investment, said that “there’s a reason why 97 percent of all commenters supported the proposal that President Biden is maintaining; investors need access to information about relevant factors that affect global markets,” referencing ESG issues.
MAGA Republicans VS Woke Agenda?
Republicans deem it unfit to prescribe investment policies intertwined with political ideologies. Some Republicans accuse Biden of following a far-left political agenda, hurting seniors and workers in the process.
Representative Andy Barr, who led the legislation through Congress along with Senator Braun, tweeted that Biden’s veto is following “woke special interest groups, NOT the American people.”
President Biden has issued his first veto on a bipartisan, bicameral Congressional Review Act that would have protected middle-class investors saving for retirement. I was proud to lead this critical piece of legislation with @SenatorBraun.
It is clear that President Biden is…
— Rep. Andy Barr (@RepAndyBarr) March 20, 2023
Even Democrat Senator Joe Manchin, who voted with Republicans, said that the administration was pushing a “radical policy agenda.”
“Despite a clear and bipartisan rejection of the rule from Congress, President Biden is choosing to put his administration’s progressive agenda above the well-being of the American people,” Manchin said.
Yet, fundamentally, Biden’s veto simply allowed investment fund managers to choose freely what companies to invest in. It is then up to the fund to make profitable decisions by weighing ESG considerations with other factors influencing the market.
This view was held by Senate Democratic leader Chuck Schumer who accused the Republicans of “forcing their own views down the throats of every company and every investor.”
Still, the Republicans found the Veto so absurd that the state of Texas is now leading a multi-state lawsuit to block the rule.
For now, the rule shows clear progress for sustainable investment under the Biden administration. It is, however, unpredictable how long it will take for the rule to be implemented as Republican states could win the lawsuit, or a 2024 Republican administration could scrap the bill altogether.
Editor’s Note: The opinions expressed here by the authors are their own, not those of Impakter.com — In the Featured Photo: US President Joe Biden greets attendees after delivering remarks on his proposed budget for fiscal year 2024, Thursday, March 9, 2023, at the Finishing Trades Institute in Philadelphia. Featured Photo Credit: Official White House Photo by Adam Schultz.