(Photo: AP)
The U.S. Senate on Wednesday followed the House in approving a resolution that would overturn the Department of Labor rule allowing, but not mandating, consideration of environmental, social and governance investing in retirement plans.
However, President Joe Biden has said he would veto the bill, which would keep the rule intact. The vote margin in neither chamber was large enough to override the expected veto. The Senate voted 50-46 to overturn the rule, with all Senate Republicans voting yes, along with two Democrats, Joe Manchin of Weste Virginia and John Tester of Montana. The resolution passed the House along party lines with a margin of 216 to 204.
The rule, which was finalized last November, removed what was essentially a chilling effect on recommending ESG-focused investment in ERISA retirement plans that was enacted during the Trump administration. That rule said plan fiduciaries should consider only "pecuniary" factors in investment decisions. It covers plans that collectively invest $12 trillion on behalf of more than 150 million people.
Some experts said the Biden administration has made only cosmetic changes to the existing rule. Where the Trump rule required plan managers to "prudently" determine whether a factor would have a "material" effect on investments, the Biden rule says they can "reasonably" determine "relevant" effects, according to a Harvard Law School analysis.
"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.
Related: 25 states file lawsuit to block DOL's new ESG rule for retirement plans
Dissenters, such as Tester, have said the potential to use ESG in plan investing will jeopardize the investments of everyday retirement savers.
"At a time when working families are dealing with higher costs, from health care to housing, we need to be focused on ensuring Montanans' retirement savings are on the strongest footing possible," he said. "I'm opposing this Biden administration rule, because I believe it undermines retirement accounts for working Montanans and is wrong for my state."
Senator Patty Murray, D-Wash., spoke in favor of the rule on the Senate floor, arguing that her colleagues misunderstand the Labor Department's position regarding ESG investing in plans.
"This is a really important point I think folks are missing: 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," she said. "The rule we are talking about is neutral on whether a fiduciary is considering these factors from a particular perspective."
The vote came on the same day that Biden officially nominated Julie Su to be the new labor secretary, with a Senate confirmation hearing to come. In his remarks about the nomination, Biden urged a swift vote, saying: "I asked the United States Senate to move this nomination quickly, so we … can continue the progress to build this economy that works for everyone." The debate over ESG investing may extend that confirmation hearing, according to some experts.
The veto would be the first of Biden's presidency.
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