WASHINGTON (CN) — House Speaker Kevin McCarthy signed a resolution Thursday that undercuts efforts by the Biden administration to give socially or environmentally conscious investments a better foothold in retirement plans.
President Joe Biden is expected to veto the joint resolution, which marks the first piece of legislation to get McCarthy’s signature since Republicans took control of the the House and installed the California representative as speaker.
Introduced Feb. 7 in the House by Kentucky Congressman Andy Barr and co-signed by dozens of lawmakers, the resolution opposes a rule that the Department of Labor proposed two months earlier to clarify regulations under the Employee Retirement Income Security Act and make it possible for retirement plan investors to consider environmental, social and corporate governance factors when choosing where to invest funds.
“What this will do is put people before politics,” McCarthy said of the rulemaking during a press conference Thursday. “Unfortunately, President Biden wants to put politics before your own savings.”
Environmental, social and corporate governance standards, often referred to using the abbreviation ESG, are meant to guide investors who want to reward companies for operations that are environmentally friendly or socially conscious.
McCarthy said the proposed rules change would force plan managers to put money into companies with higher ESG standards rather than more lucrative investments, which would mean lower returns on retirement plans.
Federal law allows Congress to formally disapprove the actions of federal agencies in resolutions such as this one, which narrowly passed in the Senate March 1 on a 50-46 vote. Democratic Senators John Tester and Joe Manchin both voted in favor. The order cleared the House in late February.
“It’s the typical example of big government socialism,” said House Majority Leader Steve Scalise. “Less return on American dollars at a higher cost to the hardworking taxpayer.”
McCarthy implored President Biden to get on board.
“I hope the president will actually do the right thing, side with the American people, and sign this bill immediately,” the speaker said. “Otherwise he’ll be on record defending the woke ESG rule that undermines Americans’ financial security.”
Before the Department of Labor proposed the ESG rule, Biden had signed an executive order in 2021 aimed at getting out in front of potential risks to investors posed by climate change or other climate-related threats.
The Labor Department eventually concluded that the rules governing retirement plans, last amended in 2020 when President Trump was in office, were unclear about whether it was legal for financial institutions to consider environmental, social or corporate governance factors when making investments.
According to the department, the language of current law appears as though retirement plan managers are limited to considering financial factors while investing. It said a review with stakeholders confirmed this.
“Many stakeholders indicated that the current regulation has been interpreted as putting a thumb on the scale against the consideration of ESG factors, even when those factors are financially material,” the agency wrote in the Federal Register late last year.
Believing that the existing regulations could have a chilling effect on investors considering environmental, social or corporate governance issues in their portfolios, the Labor Department concluded that an update was necessary/
“The current regulation creates uncertainty and is having the undesirable effect of discouraging … consideration of climate change and other ESG factors in investment decisions, even in cases where it is in the financial interest of plans to take such considerations into account,” the department said.
The proposed changes would amend the law to clarify that environmental, social and corporate governance issues are legal to consider when investing retirement funds.
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