The Biden Administration and the ESG Investment Rule Congressional Veto

In late March, 2023, President Biden issued the first veto of his Administration. The veto overturned a Republican led measure that was seeking to overturn a Department of Labor retirement plan rule.

Pretty wonky stuff you say?

The Republican measure was designed to overturn a Labor Department rule that would allow (note the word allow, NOT mandate) retirement plan managers to consider climate change in making their investment decisions.

Sounds like some double speak there doesn’t it? The Department of Labor rule was enacted to “permit” investment managers to consider climate change in making decisions. The rules did NOT require this consideration, rather, it permitted it at the discretion of the investment manager.

Congress (in a House vote of 216-204 mostly along party lines and a Senate vote of 50-46 with Democratic Senators Manchin and Tester voting with their Republican colleagues,) voted to overturn the Department of Labor Rule – effectively saying, investment managers should NOT be permitted to consider what some view as relevant information in making an informed decision (e.g., if an area floods daily, should one invest in an asset located there or instead invest where there is not a flooding risk; alternatively, if an area is prone to forest fire risk vs. an area that is not prone to this type of risk, should a manager be able to consider this if they think it relevant?).

The Administration took issue with the overturned Labor Department rule and opted to veto the Congressional restriction on being able to consider climate change in investment manager decisions. Again, as noted above, the Labor Department Rule does NOT require every or any investment manager to consider climate change in their investment decisions, instead it enables these managers to choose how they view climate change, and if they believe climate change to be a relevant factor in making an investment decision, to take it into account when making their decision.

This is likely the first of many such skirmishes to come on the ESG front and its use as a tool or a hammer, depending on your perspective, in making decisions.

Parting Thoughts – if you are an investor looking to deploy your investment dollars, the question is whether you think your investment advisor should be able to (without being required to) take into account climate factors when making investment suggestions to you or not. How and whether resiliency, climate factors, resource allocation and applicable risk mitigation is permitted or mandated into future investment decisions are some of the areas where it is highly likely that additional political party skirmishes will occur.

Duane Morris has an active ESG and Sustainability Team to help organizations and individuals plan, respond to, and execute on your Sustainability and ESG planning and initiatives. We would be happy to discussion your proposed project and how this DOE funding prize might apply to you. For more information or if you have any questions about this post, please contact Brad A. Molotsky, Alice Shanahan, Jeff Hamera, Nanette Heide, Jolie-Anne Ansley, Robert Montejo, Seth Cooley or David Amerikaner or the attorney in the firm with whom you in regular contact or the attorney in the firm with whom you are regularly in contact.

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The opinions expressed on this blog are those of the author and are not to be construed as legal advice.

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