WASHINGTON, March 20 – President Joe Biden issued his first veto on Monday on legislation that would have reversed the Department of Labor’s rule on fiduciary duties involving environmental, social, and governance (ESG) factors in investment decisions. Biden, in a message to the House of Representatives, says “there is extensive evidence showing that environmental, social, and governance factors can have a material impact on markets, industries, and businesses.”
The legislation, H.J. Res. 30, would have overturned the rule through the Congressional Review Act (CRA), which gives Congress the power to repeal a final rule issued by a federal agency within 60 days of its going into effect. The rule itself, titled “Prudence and Loyalty in Selecting Plan Investments and Exercising Shareholder Rights,” clarifies that retirement plan managers can incorporate climate and social considerations into their investment decisions by considering participants’ preferences. The rule undoes a previous President Trump-era rule that let investment managers consider purely financial factors in their decision-making process.
The bill passed the House 216 – 204 with all Republicans present voting yes and all Democrats present voting no, except for moderate Rep. Jared Golden (D-ME), whose district voted for President Trump both in 2016 and 2020. The bill then narrowly passed the Senate 50 – 46 with Senators Joe Manchin (D-WV) and Jon Tester (D-MT) voting for the bill (and Manchin strongly criticized the President’s veto). Issues concerning ESG have been top of mind for Republicans, with this resolution being one of their first major efforts against the concept at the federal level.
House Republicans have plans to hold a vote on Thursday to override the veto. The effort will most likely fail, however, as a congressional override of a presidential veto requires a 2/3 majority of both houses of Congress. As such, Republicans would need 68 House Democrats to join in on the measure.
Trump-Era Rule Limiting ESG Investing
Prudence and Loyalty in Selecting Plan Investments and Exercising Shareholder Rights
Joint Resolution Undoing the Rule