President Biden used the first veto of his presidency on Monday to stop a GOP-led measure that aimed to block retirement account managers from considering environmental, social, and corporate governance principles (ESG) when evaluating investments in retirement plans.
The joint resolution, approved on Capitol Hill earlier this month, sought to overturn a Labor Department rule that allows — but doesn't force — fiduciaries to consider those factors.
In his veto message, Biden said the rule is a win for investors.
"It allows retirement plan fiduciaries to make fully informed investment decisions by considering all relevant factors [to] maximize financial returns for retirees," he said.
While the White House move blocked the measure, its passage in Congress showed the political strength Republicans have on the issue. The GOP has made it a top priority to reverse a decades-long trend in Corporate America of taking factors like environmental impact into consideration — in addition to just profits — when it comes to investment decisions .
In his own statement Monday, Speaker Kevin McCarthy (R-CA) said that Biden "wants Wall Street to use your hard-earned money not to grow your savings, but to fund a far-left political agenda."
The House of Representatives is likely to try and override the veto on Thursday, but Republicans are expected to fall short of the two-thirds majority needed.
The back and forth comes as sustainable funds hit their lowest level in seven years in 2022, a trend that is attributable in part to a backlash against that type of investing. Emerge Canada Inc. CEO and President Lisa Lake Langley recently told Yahoo Finance Live that another issue is "companies weren't as aware of all the need to do the detailed work."
'A political wedge issue'
During another recent Yahoo Finance Live interview, Stance Capital Founding Partner Bill Davis said the ongoing political efforts around ESG have been a drag on the sector.
"It's basically, frankly, a political ploy funded by a web of dark money or a network of dark money funders that is seeking to kind of make ESG or values-aligned investing a political wedge issue," he said. "I don't actually think that the political headwinds are going to amount to much, other than just simply a lot of noise."
As of 2021, asset managers globally had over $18 trillion in overall ESG-related assets, a number that is estimated to grow to almost $34 trillion by 2026, according to an analysis from PricewaterhouseCoopers.
This year's congressional effort originated in the House of Representatives and was first brought forward by Sen. Mike Braun (R-IN) and Rep. Andy Barr (R-KY). It passed the House of Representatives in a largely party-line vote at the end of February — 216 to 204. Rep. Jared Golden (D-ME) crossed party lines to vote yes.
In the Senate, it passed the Democratic-controlled chamber largely thanks to the support of Sens. Joe Manchin (D-WV) and Jon Tester (D-MT) who joined with 48 GOP senators to give the measure the required votes for passage.
The legislation was considered under the Congressional Review Act, which allows the Senate to overturn regulatory decisions by a simple majority vote instead of the usual 60 votes required for regular bills.
Even with President Biden’s veto, the issue is unlikely to go away anytime soon.
Potential candidate Mike Pence weighed in on the measure after it passed Congress, while another candidate, Vivek Ramaswamy, is already in the race largely running on a platform of opposition to “woke” capitalism.
The House Financial Services committee, under Chair Patrick McHenry (R-NC), also has recently announced a Republican ESG Working Group with hearings promised in the months ahead.
The issue is also likely to come up during the upcoming confirmation hearings for Biden’s Labor Secretary nominee, Julie Su. The president formally unveiled his choice at a White House event earlier this month, saying he wanted the Senate to act quickly on her nomination to replace outgoing Secretary Marty Walsh.
Ben Werschkul is Washington correspondent for Yahoo Finance.
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