President Biden was dealt a major rebuke by Congress on Wednesday thanks to a pair of Senate Democrats who sided with Republicans in favor of scuttling a contentious 401(k) rule that allows the consideration of climate change and social justice politics.
The Democratic-led Senate voted 50-46 to nullify a recent Labor Department provision greenlighting retirement fund managers to use environmental, social and corporate governance investing known as ESG. The vote delivered a victory to critics of “woke” ESG investing.
Having passed the GOP-led House on Tuesday, the measure now heads to Mr. Biden’s desk, where he has vowed to issue the first veto of his presidency. Congress will be unable to muster the two-thirds majority required to overturn a veto, meaning the rule on retirement funds will remain in place.
Still, the bipartisan rebuke of the president’s provocative 401(k) regulation is credited to Democratic Sens. Jon Tester of Montana and Joe Manchin III of West Virginia, who voted with GOP senators for a Congressional Review Act resolution forced by Republicans that nukes the ESG rule.
Mr. Manchin argued that the policy was “just another example of how our administration prioritizes a liberal policy agenda over protecting and growing the retirement accounts of 150 million Americans that will be in jeopardy.”
“At a time when working families are dealing with higher costs, from health care to housing, we need to be focused on ensuring Montanans’ retirement savings are on the strongest footing possible,” Mr. Tester said.
Both Democrats are up for reelection next year in deep red states, with Mr. Biden’s veto offering them political cover to buck the party.
The resolution was privileged, thus only requiring a simple majority and forcing a floor vote.
One Democrat supported the resolution in the House: Rep. Jared Golden of Maine.
Mr. Biden’s rule reimposed a provision rolled back under former President Donald Trump that allows ESG investing for 401(k) accounts under the Employee Retirement Income Security Act of 1974. The White House and Democrats who support the policy emphasize it does not force fiduciaries to invest in ESG funds but simply gives them the option if they feel it can draw greater returns.
“The hard-right has made a lot of noise trying to make ESG their dirty little acronym,” said Senate Majority Leader Charles E. Schumer, New York Democrat. “This is about wokeness, that this is a cult, that it’s some grave intrusion into finance. It’s the same predictable, uncreative, unproductive attacks they use for anything they don’t like.”
The resolution is part of a much broader Republican offensive raging at the state and federal levels to combat what they call ESG’s “retirement rip-off,” a policy war that has in part been led by the conservative advocacy group Consumers’ Research and a coalition of state treasurers. The anti-fossil fuel investment practice is lamented as “woke capitalism” by Republicans, which they say Mr. Biden is using to “weaponize” Americans’ savings.
“ESG is an attempt to circumvent the democratic process to advance an inherently political agenda,” said State Financial Officers Foundation CEO Derek Kreifels. “Any move to supplant or dilute the fiduciary duty would undercut the foundations of our economic freedom and harm the American worker.”
Republicans and ESG critics reject the notion that the climate-conscience investing strategy takes necessary risks into consideration outside the traditional financial world. They say ESG funds lead to less returns, higher fees and more risk, therefore subverting asset managers’ fiduciary obligation to clients.
Sen. Mike Braun, Indiana Republican who led the resolution, rebuffed accusations from Democrats that barring ESG from 401(k)s shackles a free market.
“It doesn’t violate the free market principle. If you ever get something that’s really giving you a heck of a return that’s associated with an ideological point of view, the merits of the case would be the better return — not the ideology,” Mr. Braun said.
