{"id":155256,"date":"2023-03-02T14:59:52","date_gmt":"2023-03-02T14:59:52","guid":{"rendered":"https:\/\/www.shrm.org\/resourcesandtools\/hr-topics\/benefits\/pages\/senate-votes-to-overturn-esg-retirement-rule-biden-plans-to-veto.aspx"},"modified":"2023-03-02T14:59:52","modified_gmt":"2023-03-02T14:59:52","slug":"senate-votes-to-overturn-esg-retirement-rule-biden-plans-to-veto","status":"publish","type":"post","link":"https:\/\/squarehr.com\/index.php\/2023\/03\/02\/senate-votes-to-overturn-esg-retirement-rule-biden-plans-to-veto\/","title":{"rendered":"Senate Votes to Overturn ESG Retirement Rule; Biden Plans to Veto"},"content":{"rendered":"

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?The U.S. Senate on March 1 voted to overturn the month-old regulation that allows fiduciaries to consider environmental, social, and corporate governance (ESG) factors when choosing retirement investments.<\/p>\n

The resolution will head to President Joe Biden, who earlier this week promised he will veto any bill that nullifies the ESG rule.<\/p>\n

All Senate Republicans present and two Democrats on Wednesday voted for the resolution to void the Department of Labor (DOL) rule in a 50-46 vote. On Feb. 28 in a 216-204 vote, members of the U.S. House of Representatives approved an identical resolution.<\/p>\n

The DOL rule, which took effect Jan. 30, was finalized in November<\/a> following an executive order signed by Biden in May 2021 that directed federal agencies to consider policies to protect against the threats of climate-related financial risk.<\/p>\n

The ESG rule\u2014Prudence and Loyalty in Selecting Plan Investments and Exercising Shareholder Rights<\/a>\u2014permits retirement plan fiduciaries, such as 401(k) plan sponsors, 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 DOL emphasized, though, that the rule allowed fiduciaries to consider these factors and did not mandate it.<\/p>\n

In late January<\/a>, Republican attorneys general from 25 states\u2014led by Texas Attorney General Ken Paxton and Utah Attorney General Sean D. Reyes\u2014sued the Biden administration. In a 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.”<\/p>\n

The states also argued that the ESG DOL rule conflicts with the Employee Retirement Income Security Act (ERISA) since current law requires fiduciaries to consider financial benefits first and not any “nonfinancial and nonpecuniary benefits.” They also said the DOL is deviating from prior policy because its 2020 rule still required that financial factors take precedence. <\/p>\n

ERISA covers some 747,000 retirement plans, 2.5 million health plans, and 673,000 other welfare benefit plans. Employee benefit plans cover about 152 million workers and more than $12 trillion in plan assets\u2014equivalent to more than half of the nation’s gross domestic product, the complaint said.<\/p>\n

Supporters, mostly Democrats, on Wednesday defended the DOL rule, with Senate Majority Leader Chuck Schumer, D-N.Y., saying, “This isn’t about ideological preference\u2014it’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?”<\/p>\n

 Steven Rothstein, managing director of the Ceres Accelerator for Sustainable Capital Markets at Ceres, a nonprofit organization working on sustainability challenges, said the rule “levels the playing field so fiduciaries can consider all financially relevant factors in making investment decisions.”<\/p>\n

Rolling back the law would be problematic, he said, and would “significantly increase expense and legal risk for retirement plans and require managers to ignore significant financial risks.”<\/p>\n