Biden Issues First Veto of His Presidency

WASHINGTON — President Joe Biden on Monday issued his first veto since taking office, rejecting a bill that would have reversed a Labor Department rule that allowed fiduciary planners to consider environmental, social and governance factors when investing.

“This bill would risk your retirement savings by making it illegal to consider risk factors MAGA House Republicans don’t like. Your plan manager should be able to protect your hard-earned savings — whether Rep. Marjorie Taylor Greene likes it or not,” Biden said, name checking the Georgia congresswoman in a tweet announcing the veto.

In an accompanying video, Biden said the measure passed by Congress would have imperiled the retirement savings of individuals all across the country.

“They couldn’t take into consideration investments that wouldn’t be impacted by climate change or by overpaying executives … that’s why it made sense to veto it,” he said.

Unless his veto is overridden, Biden’s action Monday preserves the Labor Department’s reversal of a Trump-era amendment to the Employee Retirement Income Security Act of 1974 that required plan fiduciaries to select investments and investment courses of action “based solely on financial considerations relevant to the risk-adjusted economic value of a particular investment or investment course of action.”

The new ESG rule, which took effect on Jan. 30, was finalized in late November following an executive order signed by Biden in May 2021 directing federal agencies to consider policies to protect against the threats of climate-related financial risk.

The new rule — formally the Prudence and Loyalty in Selecting Plan Investments and Exercising Shareholder Rights — permits retirement plan fiduciaries to consider climate change and other ESG factors when they select investment options and exercise shareholder rights, such as proxy voting for plan-held securities. 

The Labor Department rule is not a mandate. It merely allows plan managers to consider these factors; it doesn’t require fiduciaries to act on them.

Nevertheless, the new rule language touched off a political firestorm.

As its effective date loomed, Republican attorneys general from 25 states, led by Texas Attorney General Ken Paxton and Utah Attorney General Sean D. Reyes, sued the Biden administration to block it. 

In a written statement announcing the filing, Paxton alleged the rule “prioritizes woke environmental, social and governance investing over protecting the retirement savings of approximately two-thirds of the U.S. population.”

Last month, the House voted 216-204 to void the Labor Department’s action on the grounds that it allegedly forced 401(k) managers and others to allocate investment money based on political agendas rather than the best returns for investors.

On March 1, the Senate followed suit, with all Republicans present being joined by two Democrats to shoot it down.

Immediately after that 50-46 vote, the president announced his intention to veto the bill.

On the day of the House vote, Lindsay Singleton, chief development officer at ROKK Solutions, a bipartisan consultancy in Washington, told The Well News “both sides seem to be playing into the culture wars, picking fights that will result in little more than virtue signaling.” 

“At the end of the day, investment managers are going to make the best decisions they can towards maximizing shareholder returns,” said Singleton, an expert in the ESG space. “Very often, these decisions will factor in long-term risks related to the environment, social factors and corporate governance, which is the heart of the ESG movement. 

“Making these decisions for shareholders never required a rule allowing investors to do so in the first place, so the politicking we’re seeing on both sides is little more than that: politicking,” she said.

Gregory Wetstone, president and CEO of the American Council on Renewable Energy, went further, calling the bill that made its way through Congress, “a direct attack on the free market and the ability of investment advisors to make decisions based on the best interests of their clients.”

“It is disappointing that a proposal that would politicize retirement investments made it as far as the President’s desk, and we commend President Biden for using his veto authority today to overturn this misguided policy,” Wetstone said.

“The Labor Department rule at issue here reflects the reality that ESG considerations are financially material. We should trust the seasoned judgment of investment professionals to make their own financial decisions without government interference or politicization, and not hamstring ESG investing, one of the nation’s most important and fastest-growing investment trends,” he added.

The Employee Retirement Income Security Act, also known as ERISA, covers an estimated 747,000 retirement plans, 2.5 million health plans and 673,000 other welfare benefit plans.

Dan can be reached at [email protected] and @DanMcCue