DOL’s ESG investing rule challenge alive, despite Biden veto

President Biden’s veto of legislation that would have killed the Labor Department’s Environmental, Social and Governance Rule won’t settle the issue, if reaction to the decision is any indication.

From an attempt to override the veto to a legal challenge by Republican state attorneys general in 25 states, the political issues surrounding Labor’s ESG rule will continue to swirl for the foreseeable future.

The resolution to kill the rule passed both houses under the “Congressional Review Act,” a process that requires only a majority vote. However, a vote to override the veto would require a two-thirds vote—a threshold that is unlikely to be met.

And so, the rule, which allows fiduciaries to consider climate change and other ESG issues when they evaluate retirement investments and shareholder rights, will remain in effect for now—a development that was welcomed by Brian Graff, CEO of the American Retirement Association.

“It’s really unfortunate that it has to come to this,” said Brian Graff, CEO of the American Retirement Association, which supported the Biden veto. He said the DOL final rule was entirely neutral and simply reinforced the principle that the financial interests of participants must come first.

Related: Need more clarity on sustainable investing (even with DOL’s final ESG rule)?

“The single reference to ESG in the rule was entirely permissive and frankly has no legal consequence,” he added. “Despite those realities, the politics around the ESG brand led Congress to take action, and we agree that the appropriate response is a presidential veto.”

Steven M. Rothstein, managing director of the Ceres Accelerator for Sustainable Capital Markets at Ceres, agreed.

“Investors in the U. S. and globally recognize the necessity of considering all financially relevant factors, which include the financial risks posed by climate change,” he said. “The DOL rule reinforces the fiduciary duties of prudence and loyalty by clarifying that plan sponsors can take these significant risks into account.”

However, Richard Morrison, a senior fellow at the free-market Competitiveness Enterprise Institute, said that the initial vote to pass the resolution should have delivered an important message.

“It demonstrates that there is a congressional majority willing to push back on politicized money management, and it shows everyone in the financial world that ESG initiatives aren’t the feel-good free lunch they were promised to be,” he said.

Following the Biden veto, Republicans blasted the president’s decision.

“Asset managers’ only priority should be helping Americans achieve the best return for their retirement, not using their clients’ money to fund a political agenda,” Sen Bill Cassidy, R-La., the ranking Republican on the Senate Health, Education, Labor, and Pensions Committee said. “By vetoing this bipartisan resolution, President Biden is jeopardizing the retirement of 152 million Americans.”

Meanwhile, the lawsuit filed by the Republican state attorneys general continues to hang over the issue. The AGs filed suit in a Texas federal court in February contending that the rule undermines the retirement savings of 152 million workers.

With the pending lawsuit, the issue appears to be unresolved. However, members of the Congressional Sustainable Investment Caucus are pushing legislation that would codify the goals of the Labor rule and settle the issue.

“Retirement plan fiduciaries should be free to consider climate change and other ESG factors without regulatory barriers or the threat of litigation,” said Rep. Sean Casten, D-Ill., co-chair of the caucus.