Anti-ESG Bill Passes Senate as Biden Threatens First Veto

The Labor Department’s rule is backed by several major Wall Street asset managers, including BlackRock Inc. and State Street Corp., who seek to tailor “green” investment products for retirement plan customers.

The Republican-led House on Tuesday voted 216-204 to clear its version and the vote tally in both chambers indicates that Congress lacks the two-thirds majority needed to override a Biden veto.

The White House has said Biden will veto the measure, with the administration arguing the rule protects workers by ensuring “that fiduciaries have the fullest set of available tools to protect their life savings and pensions.”

“Republicans talk about their love of free markets, small government and letting the private sector do its work,” White House Press Secretary Karine Jean-Pierre said Wednesday. “The Republican bill is opposite of that. It forces MAGA Republicans’ ideology down the throats of private sector and is handcuffing investors as well.”

Most ESG-focused stock indexes underperformed in 2022. Net inflows to ESG-labeled exchange-traded funds dropped to about $2.9 billion in 2022 from a record $36 billion in 2021, data compiled by Bloomberg show. But markets also that year suffered their biggest losses since the 2008 financial crisis.

Led by Sen. Mike Braun of Indiana, Republicans have made the rule another front in the political culture wars. Senate Minority Leader Mitch McConnell said it would allow the administration to endanger Americans’ retirement savings “for political causes they may not even support” and would water down investment managers’ fiduciary obligation to get the best returns for clients.

“In effect, they’re talking about letting financial companies garnish the retirement savings of workers without their permission in order to pursue unrelated liberal political goals,” McConnell said on the Senate floor.

In his own remarks and in a an op-ed, Senate Majority Leader Chuck Schumer fired back, pointing out that the rule does not impose a mandate that ESG considerations weigh into investment decisions. More than 90% of companies listed on the S&P 500 already publish ESG reports, he said, and the GOP should “let the market work.”

“If the market naturally leads to consideration of ESG factors, then Republican should practice what they’ve long preached — get out of the way,” Schumer said.

-With assistance from Tim Quinson.