Sen. Shelley Moore Capito (R-WV) talks to reporters during a news conference following the weekly Senate Republican policy luncheon at the U.S. Capitol on February 28, 2023 in Washington, DC.
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WASHINGTON – The Senate on Wednesday voted to repeal a Labor Department rule that allows fiduciary pension fund managers to consider climate change, good corporate governance and other factors when making investments on behalf of pension plan participants.
The final vote in the Senate was 50-46, with two Democratic senators crossing party lines to support the repeal bill: Sen. Joe Manchin of West Virginia and Sen. Jon Tester of Montana. Both are up for re-election next year in conservative states.
President Joe Biden said Monday that he would veto the Senate bill if it were on his desk — the first veto of his presidency.
The House version of the bill passed Tuesday with the support of every Republican and one Democrat, after which it quickly advanced to the Senate.
Buoyed by a win in November’s midterm elections, Republicans have vowed to use their newfound influence in Washington to target “awakened capitalism” — starting with an all-out assault on environmental, social, and corporate governance, or ESG, investment policies. ESG funds are designed to attract socially conscious investors with a portfolio of companies that, for example, do not contribute to climate change or practice good corporate governance.
Speaking on the Senate floor Wednesday, Majority Leader Chuck Schumer, DN.Y., defended the Labor Department’s rule, which took effect last November.
“It’s not about ideological preferences — it’s about looking at the bigger picture that investors can do to minimize risk and maximize returns,” Schumer said. “Why shouldn’t you look at the risks posed by increasingly volatile climate events?”
Democrats also noted that the Labor Department’s rules are voluntary, so they don’t require fund managers to do anything.
However, a departure from the previous rule, implemented during the Trump administration, which required federal pension fund managers to limit investment decisions to only those that would generate the highest returns, effectively prohibiting consideration of other factors.
Republican critics of the Labor Department’s new rules say it harms 401(k) retirement funds by allowing investment managers to embrace ideological issues such as climate change before investing returns.
“The last thing we need to do is encourage fiduciaries to make decisions with a low rate of return for purely ideological reasons,” Senator Mike Braun of Indiana, the Senate’s lead sponsor of the bill, said earlier this month.
Republican House committee chairmen and presidential candidates such as Florida Governor Ron DeSantis have placed ESG investment policies on Wall Street at the top of the political hit list, as part of an effort to tap into the populist economic sentiment championed by former President Donald Trump.
The anti-ESG campaign has also been supported by a small army of conservative nonprofits and advocacy groups, many with ties to wealthy GOP political contributors and fossil fuel companies.
Flush with donor money, organizations with names such as 1792 Exchange and Consumers’ Research have run ad campaigns criticizing top investment firms including BlackRock, Vanguard and State Street for what they say are politically motivated investments.