This past Monday morning, President Joe Biden made use of his office’s veto power as he pulled out the pen to murder a piece of legislation that would have overturned a Labor Department rule allowing retirement fiduciaries to invest in accordance with the environmental, social, and corporate governance movement, which has infamously become known as ESG.
The Labor Department issued a final rule this past year which showed the purported efforts of the Biden administration to protect the economy from “climate-related financial risk that may threaten the life savings and pensions of America’s workers and families.” Under this new rule, which reverses a prohibition spawned out of the Trump administration, Fiduciaries are now allowed to think about the “the economic effects of climate change and other ESG considerations” as long as said concerns are fully relevant to a normal risk-and-return analysis.
This veto, which is the first of its kinda to be carried out by Biden, fully overturns a resolution pushed through by Republicans working with a handful of Democrats in an effort to get rid of the rule. Both Sen. Jon Tester (D-MT) and Sen. Joe Manchin (D-WV), who are campaigning for re-election next year out of states now known to be heavily Republican, elected to vote in the same manner as their GOP colleagues in order to advance the issue.
“There is extensive evidence showing that environmental, social, and governance factors can have a material impact on markets, industries, and businesses. 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,” stated Biden in a release sent to legislators this past Monday. “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.”
Those critical of the ESG movement have stated that this investment philosophy forces together social and political causes, such as diversifying company leadership with respect to race or sex, in such a way that detracts from or distracts away from profitability. They have highlighted lackluster performance from ESG funds this past year as technology firms, which most ESG managers seemingly put additional favor in due to their emphasis on internal workforce diversity and corporate social responsibility, suffered throughout the stock market while many energy companies, which are disliked by most ESG managers because of the carbon emissions associated with the sector, saw fairly amazing returns.
Despite everything, most senior officials from the Biden administration have promoted a number of tenets out of the ESG movement playbook throughout their agencies. Recently, Treasury Secretary Janet Yellen made the claim while at the first meeting of a recently created Climate-Related Financial Risk Advisory Committee that extreme weather all over the country has been attributable to climate change and “can lead to declines in asset values that could cascade through the financial system.”