Republican Louisiana Sen. Bill Cassidy will introduce legislation on Thursday to nullify a Biden-Harris administration rule allowing retirement funds to consider factors like racial justice and climate change when investing.
The bill would require retirement funds to only make investment decisions based on “pecuniary factors,” meaning that they would only be allowed to weigh considerations in terms of the “material effect on the risk or return of an investment,” effectively banning environmental, social and governance (ESG) investing, according to a copy of the text obtained exclusively by the Daily Caller News Foundation. ESG is a framework that holds that investments should be made in ways that prioritize ideological commitments such as environmentalism or social equity in addition to profitability, as opposed to profitability alone.
“Asset managers should prioritize helping Americans achieve the best return for their retirement, not funneling their clients’ money to fund a left-wing political ideology,” Cassidy, who serves as the ranking member of the Senate Health, Education, Labor and Pension Committee, said. “This legislation protects 152 million Americans who depend on a strong retirement to live after their career is over.”
Under current Department of Labor rules, administrators of employee retirement plans are allowed to consider ESG factors when choosing between investment opportunities they have determined to be of equivalent quality. If a retirement fund determines multiple investment options are of equal value under Cassidy’s bill, it must document how it made that determination and then choose at random between the options. (RELATED: Court Ordered To Reconsider Biden Admin Green Investing Rule Following Landmark Supreme Court Ruling)
ESG investing has proven volatile in many instances, as such funds often see greater losses than traditional investment funds, which could jeopardize the long-term stability of retirement accounts. “Clearly, the fact that performance has not been good for these funds over the past two years … has discouraged some investors,” Hortense Bioy, global director of sustainability research at the financial services firm Morningstar, told the Financial Times.
Investors pulled $13 billion in assets out of ESG funds in 2023, marking their worst year on record, according to a report published by Morningstar. 2024 could be even worse for the funds, with a record $8.8 billion flowing out of them during just the first quarter of the year, Reuters reported.
There was a total of $315 billion worth of assets in American ESG funds as of September 2023, according to CNN.
Sen. Bill Cassidy talks with reporters after a vote, outside the Senate Chamber on Capitol Hill. (Kent Nishimura / Los Angeles Times via Getty Images)
Congress passed a similar bill last year that would have also banned ESG investing in retirement funds, with then-Democratic West Virginia Sen. Joe Manchin joining Republicans to support the effort. Biden ultimately vetoed the legislation, however.
“Asset managers’ only priority should be helping Americans achieve the best return for their retirement, not using their clients’ money to fund a political agenda,” Cassidy said at the time. “By vetoing this bipartisan resolution, President Biden is jeopardizing the retirement of 152 million Americans.”
The White House did not respond when asked by the DCNF if Biden would veto another attempt to prohibit ESG investing in retirement funds.
Even if Cassidy’s most recent push to take on the Biden-Harris administration’s ESG investing rule fails, it could still be defeated in court, as the Fifth Circuit Court of Appeals ruled in July that a Texas judge must reconsider his decision upholding the ESG regulation because he relied on a legal doctrine called the Chevron deference, which the Supreme Court overturned in June.
“ESG has created an uncontrollable impulse to pressure corporations to solve complex global and societal issues,” Utah State Treasurer Marlo Oaks said of ESG investments in a statement to the House Committee on Ways and Means in November 2023. “These issues, such as climate, income inequality, guns and abortion to name just a few, should be in the purview of a democratically elected government. ESG hijacks corporate governance to advance ideological objectives often divorced from and often detrimental to long-term shareholder value.”
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