A joint resolution that would nullify the Department of Labor's new rule permitting retirement plan fiduciaries to consider climate change and other environmental, social and governance factors when selecting investments and exercising shareholder rights will head to President Joe Biden's desk after the Senate on Wednesday approved the measure.
Mr. Biden has promised to veto the resolution.
All Senate Republicans present and two Democrats voted for the resolution disapproving of the Labor Department's Prudence and Loyalty in Selecting Plan Investments and Exercising Shareholder Rights rule Wednesday in a 50-46 vote. The House on Tuesday approved an identical resolution in a 216-204 vote.
The rule, which went into effect Jan. 30, allows ERISA fiduciaries to consider ESG factors. It also maintains the department's position that fiduciaries may not sacrifice investment returns or assume greater investment risks as a means of promoting collateral social policy goals. The rule is a reversal of two rules promulgated late in the Trump administration that said retirement plan fiduciaries could not invest in "non-pecuniary" vehicles that sacrifice investment returns or take on additional risk and outlined a process a fiduciary must undertake when making decisions about casting a proxy vote.
At a news conference before Wednesday's vote, Sen. Mike Braun, R-Ind., who introduced the resolution last month, said the Labor Department rule jeopardizes retirement savings for millions of Americans for a political agenda. "This is our way to say, 'Enough is enough,'" Mr. Braun said.
Democrats overwhelmingly support the Labor Department rule. In a floor speech Wednesday, Sen. Patty Murray, D-Wash., said the rule isn't "about saying the left or the right take on a given environmental, social or governance issue is correct. It's about acknowledging these factors are reasonable for asset managers to consider. It's about risk mitigation to safeguard retirement plan savers' nest eggs. It's about letting these asset managers do their jobs without government getting in the way. That should not be controversial — it should be common sense."
The Congressional Review Act lets Congress disapprove — by a simple majority vote — a final rule issued by a federal agency if it has not been in effect for more than 60 legislative days. Also, if a joint resolution of disapproval is enacted, the CRA stipulates that a rule may not be issued in "substantially the same form" as the disapproved rule unless it is specifically authorized by a subsequent law.
In a statement Monday, the White House said the new rule "reflects what successful marketplace investors already know — there is an extensive body of evidence that environmental, social and governance factors can have material impacts on certain markets, industries, and companies."
The president has 10 days — excluding Sundays — to sign or veto a bill passed by Congress, according to information on the Senate's website. It would mark the president's first veto of his administration.
Labor Department officials in recent months have underscored that the rule does not allow plan fiduciaries to sacrifice investment returns or assume greater investment risks as a means of promoting collateral social policy goals.
"The purpose of that rule is to just make it clear that fiduciaries can take ESG factors into consideration when they're making retirement decisions, just like they would prudently consider any other factors," said Lisa M. Gomez, assistant secretary of labor for the Employee Benefits Security Administration on Tuesday at the National Institute on Retirement Security's 2023 Annual Retirement Policy Conference.
