WASHINGTON (Reuters) – A Republican bill designed to prevent pension fund managers from basing investment decisions on factors such as climate change was approved by Congress on Wednesday, prompting a confrontation with President Joe Biden, who is expected to veto the measure .
The U.S. Senate voted 50 to 46 to pass a resolution to repeal a Department of Labor rule that makes it easier for fund managers to consider environmental, social and corporate governance or ESG issues when investing and making decisions about shareholder rights, such as through proxy voting .
The result highlighted Republicans’ willingness to oppose their traditional allies on Wall Street and in corporate America, who are adopting what party lawmakers call “awakened” liberal practices.
Two Democratic Senators, Joe Manchin and Jon Tester, voted with the Republicans. Both face re-election in 2024 in Republican states. The Republican-controlled House of Representatives passed the law on Tuesday.
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The White House said Biden would veto the measure.
Republicans claim the rule, which covers plans that collectively invest $12 trillion on behalf of 150 million Americans, would politicize investment by allowing plan managers to pursue liberal causes, which they say would hurt performance.
Senate Democratic Chairman Chuck Schumer accused Republicans of interfering in private investment decisions, telling the Senate that they “impose their own views on every company and every investor.”
[1/3] The dome of the US Capitol is reflected in a car window, on the morning of the first day of the 118th Congress in Washington, DC, U.S. January 3, 2023. REUTERS/Jon Cherry/File Photo
The Labor Department regulation prohibits plan managers from subordinating financial interests to other goals, according to an analysis by Harvard Law School, which found it makes largely cosmetic changes to a more restrictive rule introduced under former President Donald Trump.
Republicans said their resolution would prevent fund managers from basing investment decisions primarily on ESG factors. However, they acknowledged that this would not prevent the funds from fully considering ESG issues.
“It just says that the primary criterion has to be financial return,” said Republican Senator Mike Braun, who supported the bill.
The Labor Department said the Trump-era rule failed to take into account the positive impact ESG investing can have on long-term returns. The industry has been divided over the Biden rule, with fossil fuel companies opposed and other companies voicing support.
In 2022, ESG funds were hit by the aftermath of the Ukraine war, the collapse of financial markets and the US political backlash against the industry. As a result, these funds underperformed non-ESG for the first time in five years after fossil fuel stocks – which they normally avoid – rallied.
Republicans used a tool called the Congressional Review Act, which allows them to bypass the usual 60-vote threshold in the Senate to challenge the Labor Department’s rule.
They are expected to make similar efforts on other issues in the coming months when the 2024 presidential campaign is in full swing.
Reporting by David Morgan; additional reporting by Daniel Wiessner in Albany, New York; Adaptation by Andy Sullivan, Nick Zieminski and Bill Berkrot
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