In his first veto, President Joe Biden on Monday rejected a congressional measure to cancel a Labor Department rule that would have allowed retirement plan money managers to consider environmental, social and governance (ESG) issues when making investment decisions.
Biden’s veto blocks the resolution the Senate passed on March 1, which would have cancelled the DOL rule, which allows but does not require fiduciaries to weigh ESG issues when making investment decisions for qualified retirement plans.
"I just signed this veto because the legislation passed by the Congress would put at risk retirement savings of individuals across the country," Biden said in a video posted to Twitter. "They couldn't take into consideration investments that would be impacted by climate impacted by overpaying executives."
The DOL rule, which went into effect January 30, replaced a Trump-era rule that the Biden administration claims discouraged consideration of ESG factors “even in cases where it is in the financial interest of plans to take such considerations into account.”
The American Retirement Association (ARA) said in a statement immediately following the veto that it “applauds President Biden’s veto” and that it “was needed to quash an attempt by slim majorities in Congress to set aside under the Congressional Review Act the new regulation.”
The ARA also said that “in contrast with the hyperbole surrounding opposition to the regulation, it does not require consideration of ESG factors—in fact, it clearly states that the only acceptable criteria is the financial best interests of participants and beneficiaries.”
The Senate voted 50-46 on March 1 to rescind the agency’s rule, with backing from Sens. Joe Manchin (D-W.V.) and Jon Tester (D-Mont.). The House voted to pass the rollback of the DOL rule one day earlier on a 216-204 vote. Rep. Jared Golden (D-Maine) was the sole Democrat to vote for the resolution in the House.
Since last year, the anti-ESG movement has been picking up steam among Republicans, particularly those in energy-producing states, who have said they fear that the climate change push could end up “blacklisting” fossil fuel companies, and disrupt their economies.
Earlier this month, Manchin called the Biden DOL rule “another example of how our administration prioritizes a liberal policy agenda over protecting and growing the retirement accounts of 150 million Americans.”
In a statement after his vote to block the DOL rule, Tester said “at a time when working families are dealing with higher costs, from healthcare to housing, we need to be focused on ensuring Montanans’ retirement savings are on the strongest footing possible. I’m opposing this Biden administration rule because I believe it undermines retirement accounts for working Montanans and is wrong for my state.”
The fate of the DOL rule now appears to turn on the legal battle being mounted by GOP officials at the state level.
More than two dozen states filed a lawsuit against the Biden administration January 30 to halt the ESG rule. The lawsuit, filed in Texas federal court, seeks a preliminary injunction to stop the rule from going into effect.
Utah Attorney General Sean Reyes and Texas Attorney General Ken Paxton, both Republicans, filed the lawsuit, which is also seeking permanent relief in the form of a declaration that the ESG rule violates the Administrative Procedure Act and ERISA and “is arbitrary and capricious.”
In a statement to the press, Paxton accused the Biden administration and DOL of prioritizing “woke environmental, social and governance investing over protecting the retirement savings of approximately two-thirds of the U.S. population.”
The coalition of states suing the Biden administration are all led by Republican attorney generals and include Utah, Virginia, Louisiana, Alabama, Alaska, Arkansas, Florida, Georgia, Indiana, Idaho, Iowa, Kansas, Kentucky, Mississippi, Missouri, Montana, Nebraska, New Hampshire, North Dakota, Ohio, South Carolina, Tennessee, Texas, West Virginia, and Wyoming.
Liberty Energy and its subsidiary, Liberty Oilfield Services, along with oil and gas non-profit Western Energy Alliance, have also joined the lawsuit as plaintiffs.
Liberty Oilfield Services, which is a plan sponsor, argues in the lawsuit that as a result of the new rule, it will “be forced to expend additional time and resources monitoring and reviewing recommendations from its investment advisors, without the benefit of recordkeeping requirements or clearer fiduciary duty regulations, to ensure they are focusing explicitly on pecuniary considerations and not collateral ESG factors.”
West Virginia also pushed back at the climate change movement last July when it blacklisted five Wall Street giants from bidding on state banking contracts on the grounds that they boycott fossil fuel companies.
BlackRock, Goldman Sachs, JPMorgan Chase, Morgan Stanley, and Wells Fargo are all on West Virginia’s list of banned financial services companies.
Last month, Oklahoma Treasurer Todd Russ also announced he was planning to put financial institutions that “boycott” energy companies on a blacklist that will bar those firms from managing billions of dollars from government entities.