President Joe Biden issued the first veto of his presidency on March 20, rejecting legislation that sought to void the Department of Labor's (DOL's) rule allowing fiduciaries to consider environmental, social and governance (ESG) factors when choosing retirement investments.
"I just signed this veto because the legislation passed by … Congress would put at risk retirement savings of individuals across the country," Biden said in a video posted to Twitter. "[Fiduciaries] couldn't take into consideration investments that would be impacted by climate, impacted by overpaying executives."
A two-thirds majority of Congress would be needed to override Biden's veto.
The Senate on March 1 voted 50-46 to overturn the ESG regulation, which at the time was a month old, with all Senate Republicans present and two Democrats voting to void the rule. On Feb. 28, in a 216-204 vote, members of the House of Representatives approved an identical resolution.
Shortly after the House vote, Biden promised he would veto any legislation nullifying the rule.
The ESG rule, which took effect Jan. 30, was finalized in November 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.
The ESG rule, titled Prudence and Loyalty in Selecting Plan Investments and Exercising Shareholder Rights, permits 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, including proxy voting for plan-held securities. The DOL emphasized, though, that the rule allows fiduciaries to consider these factors—but does not mandate doing so.
The rule has been subject to significant debate, with opponents arguing that it will hurt retirement savings. In late January, Republican attorneys general from 25 states—led by Texas Attorney General Ken Paxton and Utah Attorney General Sean Reyes—sued the Biden administration over the rule, with Paxton saying it "prioritizes woke Environmental, Social and Governance investing over protecting the retirement savings of approximately two-thirds of the U.S. population."
Supporters of the DOL rule say it is helpful to all parties because it enables fiduciaries to use their best judgment when making investment decisions by allowing them to consider all relevant financial factors, including ESG.
Steven Rothstein, managing director of the Ceres Accelerator for Sustainable Capital Markets at Ceres, a nonprofit organization working on sustainability challenges, said recently that rolling back the rule would be problematic and would "significantly increase expense and legal risk for retirement plans and require managers to ignore significant financial risks."
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