Senate votes to block DOL ESG rule

Republicans accused of 'handcuffing investors' by not allowing ESG considerations

The Senate has voted 50-46 to block the Department of Labor (DOL)’s ESG rule for retirement plans.

In November, the DOL promulgated a regulation that allows plan fiduciaries to consider ESG factors when selecting investments. The measure replaced a Trump administration rule that critics said would have had a chilling effect on the use of ESG in retirement accounts.

The Senators introducing their bill cast the DOL’s rule as “politiciz[ing] millions of Americans’ retirement investments to favor Biden’s ideological preferences rather than getting the best returns for Americans,” according to an announcement of the legislation.

This week’s Senate vote to block the rule, which relied mainly on Republicans but also included moderate Democrats Jon Tester of Montana and Joe Manchin of West Virginia, who are both up for re-election next year.

“I’m opposing this Biden Administration rule because I believe it undermines retirement accounts for working Montanans and is wrong for my state,” Tester said in a statement.

President Joe Biden has said he plans to veto the bill if it comes to his desk, which would be the first veto of his presidency.

“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. “The Republican bill is opposite of that. It forces MAGA Republicans’ ideology down the throats of private sector and is handcuffing investors as well.”

Democrats noted the rule does not require retirement plan fiduciaries to consider ESG factors in choosing investments, but it allows them to.

Speaking on the Senate floor on Wednesday, CNBC reported majority leader Chuck Schumer, D-N.Y., defended the rule by saying: “This isn’t about ideological preference — it’s about looking at the biggest picture possible for investors to minimize risk and maximize returns. Why shouldn’t you look at the risks posed by increasingly volatile climate incidents?”

Industry commentators have also responded to the news. Antoine Argouges, CEO of investment app Tulipshare, said the decision to pass the bill “fundamentally ignores the potential long-term financial opportunities available by investing with an ESG perspective in the near-term”.

“By denouncing the legitimacy of ESG criteria, Republicans in the US are failing to see the true value of investing through an ESG lens and further illustrates the impact of a growing false narrative and populist opinion that ESG is here to end capitalism. Their narrative is that ESG is merely an expense on the balance sheet and by opposing its inclusion in investment decisions they are trying to protect financial interests.”

This comes as the Financial Times reports a dozen big US financial companies including BlackRock (which backs the DOL rule), Blackstone, KKR and T Rowe Price, have warned that the ESG backlash itself is now a material risk.

The firms have added language to their annual reports filed in the past month cautioning that pressures such as “divergent views” or “competing demands” on ESG investing could hurt financial performance.