As expected, President Joe Biden vetoed Congress' recent decision to overturn a new US Labor Department rule that allows financial managers of private retirement plans to consider environmental, social and governance (ESG) factors in investments. The Biden rule rolled back a Trump-era rule barring fiduciaries from assessing ESG risks and returns along with other investment criteria.
Republicans who led the effort to overturn the department's recent "Prudence and Loyalty in Selecting Plan Investments and Exercising Shareholder Rights" rule argued that ESG investments hurt investors by discriminating against certain companies and industries. Biden countered that ESG can have a "material impact on markets, industries and businesses" and that ignoring such risk can, instead, be detrimental for people saving for retirement.
"Retirement plan fiduciaries should be able to consider any factor that maximizes financial returns for retirees across the country," Biden wrote in his March 20 veto. "That is not controversial — that is common sense."
West Virginia State Treasurer Riley Moore, an outspoken member of a GOP-led state campaign trying to root out ESG-focused investing, said in a statement that the veto — Biden's first — goes against "the best interests and financial security of the American people."
West Virginia Gov. Jim Justice and 17 other governors from mostly fossil fuel-heavy states March 16 issued a policy decree pledging to protect taxpayers "from ESG influences across state systems." GOP states are also challenging the Biden labor department rule in court.
ESG, which tends to tilt toward the "E" in the acronym and focus on climate risks, is one of a number of issues over which Democrats and Republicans today are deeply divided.
"We applaud President Biden for vetoing this dangerous effort that would have prevented Americans from considering the real-world impacts of the climate crisis on their investments," Ben Jealous, executive director of the Sierra Club, said in a statement on the president's veto. "This is an act of solidarity with hardworking Americans over powerful corporate donors and fossil fuel interests."