On March 20, President Biden issued his administration's first veto to defend a rule on ESG investing. This comes after the U.S. Senate voted on March 1 to overturn the rule, which was enacted last year and allows retirement plan managers to consider ESG factors in investment decisions.
Republican lawmakers, who made up most of the 50-46 vote to overturn, argued that the rule politicizes retirement funds and attempts to push a liberal agenda on Americans and their finances.
However, as Senate Majority Leader Chuck Schumer emphasized, the rule does not represent a mandate, but merely allows ESG factors to be considered in investment selection.
“This isn’t about ideological preference, it’s about looking at the biggest picture possible for investments to minimize risk and maximize returns,” Schumer said, adding that the rule would simply allow the free market to “do its work.”
This battle over the Labor Department’s rule is just the latest example of the ongoing ESG and “woke capitalism” debate.
Critics of ESG-focused policies range from GOP leaders to business moguls like Elon Musk, who has labeled ESG as a “scam… weaponized by phony social justice warriors.”
ESG-friendly portfolios might include companies that are known to practice good corporate governance, or do not contribute to climate change. Yet, ESG proponents maintain that viewing investments through the lens of environmental, social and governance issues isn’t “woke” — it’s simply a smart business strategy.
“The [Labor Department] 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 explained in a statement.
The statement also echoed Schumer’s words, clarifying that, “The 2022 rule is not a mandate – it does not require any fiduciary to make investment decisions based solely on ESG factors. The rule simply makes sure that retirement plan fiduciaries must engage in a risk and return analysis of their investment decisions and recognizes that these factors can be relevant to that analysis.”
Meanwhile, ESG continues to make headlines as businesses await a final rule on climate disclosures from the SEC, with an official announcement expected next month. The rule would require publicly traded companies to disclose their Scope 1 and Scope 2 emissions, and have those disclosures independently verified by a third party.
If Congress moves to override President Biden's recent veto, they will need a two-thirds majority vote in both chambers.
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This article was first published on March 3 and updated on March 20.