The Senate voted this week to overturn a Biden-era federal rule that would have allowed retirement plan managers to consider environmental, social and governance (ESG) factors when making investment decisions. The resolution passed by a slim margin, with 50 Republicans voting in favor and 48 Democrats voting against.
The rule, which was put in place by the U.S. Department of Labor in April, would have allowed retirement plan managers to take into account factors such as climate change, gender equality, and other social and environmental issues when making investments on behalf of plan participants.
However, Republicans in Congress have argued that the rule would lead to “woke” investments that are not in the best interest of plan participants. They also argued that ESG investments are too costly and could reduce returns for plan participants.
The House voted on Tuesday to kill the rule, with all but one Democrat voting against it. The Senate voted on Wednesday, with 50 Republicans and one Democrat voting in favor. President Biden is expected to veto the resolution, but it is unclear if there are enough votes in Congress to override the veto.
The Labor Department rule was meant to encourage fiduciaries, who manage retirement funds on behalf of plan participants, to consider ESG factors. The rule also included guidance on how to evaluate ESG investments and how to assess any potential conflicts of interest that may arise.
Proponents of ESG investing argue that it can lead to better long-term returns by taking into account the risks posed by climate change and other environmental and social issues. They also argue that ESG investing can lead to better risk-adjusted returns, as well as better alignment with the values of plan participants.
Opponents of the rule argued that it could lead to higher costs for retirement plan participants, and that it could lead to investments that are not in the best interest of plan participants. They also argued that it would lead to a “woke” investing agenda, where plan managers are more focused on making socially conscious investments than generating returns.
The debate over ESG investing is likely to continue, as both Democrats and Republicans have indicated that they are committed to protecting the retirement savings of Americans. It remains to be seen how the Biden administration will respond to the Senate’s vote to overturn its ESG investment rule.