Biden Blocks Bill Barring Investment Funds from Considering Climate Change

President Joe Biden has successfully blocked a Congressional resolution which aimed to punish investment funds for considering the environmental, social, and governance (ESG) records of companies, including their risk of exposure to climate change problems. 

Background for those who haven’t followed this issue: There has been an increasing push (including by public investment funds) to screen company stocks in part on the basis of how well the company takes ESG factors into account in their operations. For example, an investment fund might stop trading in the stock and bonds of companies too heavily reliant on fossil fuel production. It might favor the stock of an electric utility aggressively investing in wind, solar, and battery storage, and divest the securities of banks which choose to finance new coal mines or coal-fired power plants. When major investors take such positions, even major banks and big utilities can start to listen.

The Trump Administration took a similar approach, attempting to block entities it regulated from considering climate change and other ESG issues. As it has in so many policies, the Biden Administration reversed that course. In December, the U.S. Department of Labor adopted a rule explicitly stating that investment plan fiduciaries can consider ESG factors in making investment decisions. 

The narrow new House Republican majority decided to take the issue up as one of its early legislative priorities, and passed a resolution overturning the Labor Department’s ESG rule. The bill found enough support in the Senate to narrowly pass there as well.

This disapproval resolution is a special form of legislation, which requires only a simple majority in both chambers to pass. However, it is also subject to a presidential veto, which requires a two-thirds majority of each chamber to override.

Biden’s First Veto…Sustained

Biden employed the first veto of his presidency, which sent the bill back to the House for action. The House last week voted on an override, which fell far short of enough votes to pass.

In his message vetoing the legislation, Biden said, “The Department of Labor’s final rule protects the hard‑earned life savings and pensions of tens of millions of workers and retirees across the country. It allows retirement plan fiduciaries to make fully informed investment decisions by considering all relevant factors that might impact a prospective investment, while ensuring that investment decisions made by retirement plan fiduciaries maximize financial returns for retirees.” 

“There is extensive evidence showing that environmental, social, and governance factors can have a material impact on markets, industries, and businesses,” he continued. “But the Republican-led resolution would force retirement managers to ignore these relevant risk factors, disregarding the principles of free markets and jeopardizing the life savings of working families and retirees. In fact, this resolution would prevent retirement plan fiduciaries from taking into account factors, such as the physical risks of climate change and poor corporate governance, that could affect investment returns. Retirement plan fiduciaries should be able to consider any factor that maximizes financial returns for retirees across the country. That is not controversial — that is common sense.” 

The national League of Conservation Voters (LCV) joined other social and environmental justice and climate action advocates in cheering Biden’s veto and the House’s failure to override.

“President Biden deserves immense credit for using his first veto to stand up for investor freedom and respond to retirees’ demands that climate risks be treated just the same as all other financial risks in their pensions,” said LCV Government Affairs Advocate David Shadburn. “It is abhorrent that Republicans are using their narrow majority in the House to fight the popular, affordable clean energy transition that’s already creating good jobs and lowering energy bills across the country. This harmful resolution would have forced investors to disregard climate risks and tie retirees to the same financially damaging investments that are already increasing costs for extreme, MAGA Republican-led states.” 

“On the heels of the most dire [international climate researchers] report yet, Republicans are playing politics with people’s savings and the future of our planet,” said Shadburn. “This attempt to override President Biden’s decision to protect our freedom to invest responsibly is a clear political stunt to appease Republicans’ fossil fuel CEO cronies. From this vote to the destructive Polluters Over People Act, House Republicans are running a tired retread of Big Oil’s talking points – while the vast majority of voters support the affordable clean energy transition.”