President Biden’s First Veto Frustrates Anti-ESG Coalition

On March 20, President Joe Biden used his first presidential veto to block a GOP-sponsored anti-ESG bill from taking effect. The bill would have eliminated a Department of Labor rule that allows ERISA retirement fund managers to take environmental, social, and governance (ESG) factors into account when evaluating potential investments. The Republican-controlled House attempted to override President Biden’s veto but failed to gather the necessary two-thirds votes.

Although the fight over ESG has dominated headlines, the DOL rule merely clarifies the factors ERISA plan fiduciaries may consider when evaluating investments or exercising their shareholder rights. A previous rule enacted during the Trump Administration required that plan fiduciaries make investment decisions based strictly on “pecuniary factors.” After conducting various outreach efforts to those fiduciaries, however, the DOL determined that the previous rule had a “chilling effect” and imposed needless restrictions. The new rule is intended to allow investors greater freedom in exercising their fiduciary duties, which includes the ability to consider ESG factors when making investment decisions.

Congress’s attempt to scrap the DOL rule reflects a growing anti-ESG movement among Republicans across the country. Once a niche investment approach, ESG has taken center stage in national politics ahead of the 2024 elections. Conservative politicians have railed against the practice, calling ESG a “threat to our capital markets” and “based on woke ideology.” In fact, the Chairman of the House Financial Services Committee even formed a Republican working group to combat “those on the far-left pushing [ESG] proposals.”

Although the DOL rule survived the latest Republican challenge, the anti-ESG movement in Congress will likely continue to grow. Expect more political standoffs and increasing anti-ESG messaging as the election season heats up. It is yet to be seen whether ESG will be an effective rallying cry for conservatives at the polls come November, but for now, ESG has certainly established its spot in mainstream political discussions.