Biden reverses Trump-era rule, employers can now consider ‘climate change’, social factors in 401k investments

The Biden Department of Labor has reversed a Trump-era rule that had effectively prohibited pension funds from investing retirees’ money into funds that benefit the environment but aren’t necessarily the best investment options.

The rule had made it so that pension funds had to prioritize maximizing profit over trying to save the planet. As a result, pension funds weren’t allowed to factor in an investment’s ESG score.

According to the Corporate Finance Institute, an ESG score is a “measurement or evaluation of a given company, fund, or security’s performance with respect to Environmental, Social, and Governance (ESG) issues.”

It’s basically a measurement of how “woke” an investment or company is vis-a-vis taking care of the environment.

“There are many flavors of ESG funds; they may, for example, funnel investor money into wind and solar companies or those with diverse board members, or steer funds away from firms involved in fossil fuels,” CNBC notes.

“Today’s rule clarifies that retirement plan fiduciaries can take into account the potential financial benefits of investing in companies committed to positive environmental, social and governance actions as they help plan participants make the most of their retirement benefits,” Secretary of Labor Marty Walsh said in a press release Tuesday.

“The rule announced today will make workers’ retirement savings and pensions more resilient by removing needless barriers, and ending the chilling effect created by the prior administration on considering environmental, social and governance factors in investments,” Assistant Secretary for Employee Benefits Security Lisa M. Gomez added.

“Climate change and other environmental, social and governance factors can be useful for plan investors as they make decisions about how to best grow and protect the retirement savings of America’s workers,” she continued.

Republicans disagree and have begun fighting back. Indeed, last month four Republicans — Reps. Greg Murphy, Carol Miller, David Schweikert, and Lloyd Smucker — introduced an anti-ESG bill, the Safeguarding Investment Options for Retirement Act, to protect Americans’ pensions from the influence of ESG.

“[T]he Biden administration’s proposed changes to [the Employee Retirement Income Security Act of 1974] abandon fiduciary responsibility by allowing ‘woke’ ESG factors to dictate investment returns – putting Americans’ retirement savings at risk,” Murphy said in a statement.

“Our commonsense legislation would impose strict enforcement measures to ensure that ‘woke’ Biden policies do not hinder Americans’ retirement savings. I am grateful to Republican Attorney Generals across the nation who are fighting back against the Biden administration’s radical policies and leading the charge against ESG at the state level,” he added.

Governors like Florida’s Ron DeSantis are also fighting back. In August, he passed a resolution “directing the state of Florida’s [pension] fund managers to invest state funds in a manner that prioritizes the highest return on investment for Florida’s taxpayers and retirees without considering the ideological agenda of the environmental, social, and corporate governance (ESG) movement.”

“This update to the fiduciary duties of the SBA’s investment fund managers and investment advisors clearly defines the factors fiduciaries are to consider in investment decisions and states that ESG considerations will not be included in the state of Florida’s pension investment management practices,” a press release from the governor’s office reads.

Likewise, last month, Texas Comptroller Glenn Hegar “sent letters to nearly 20 banks and financial services providers asking if their funds either limit or block fossil fuel investments in light of a law to boycott investment vehicles divesting from oil, gas and coal firms,” West Virginia “dropped BlackRock Inc. funds from its portfolio over the asset manager’s embrace of ESG investing,” according to Rollcall.

Over in the U.S. House meanwhile, now that Republicans are poised to take over in January, they’re prepping to push their own ESG legislation.

“We’re going to be able to put some limits on this, precluding the Securities and Exchange Commission, for example, from using their regulatory authority to implement policies that are really out of bounds of their actual authority. We’ll have some ability to push back on that starting next winter,” Rep. Chris Stewart said to Rollcall.

The right/left battle over ESG has been brewing since at least March, when the Biden Employee Benefits Security Administration announced that it would no longer be enforcing the Trump-era ESG rule, much to the chagrin of congressional Republicans.

“Since DOL is allowing plan fiduciaries to put non-pecuniary policy objectives above the financial interests of plan participants and beneficiaries, fiduciaries are now free to include ESG funds in their plans even if they have lower returns, higher costs, and/or higher risks,” a team of Republicans warned at the time in a letter.


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