US Congress Votes to Ban ESG Investing, Biden Veto Expected

WASHINGTON, March 1 (Reuters) – Congress approved a Republican bill on Wednesday that would prevent pension fund managers from basing investment decisions on factors such as climate change, sparking a clash with President Joe Biden.

The U.S. Senate voted 50-46 to approve a resolution repealing a Labor Department rule to make it easier for fund managers to consider environmental, social and corporate governance, or ESG, issues for investments and shareholder rights decisions, proxy voting, etc.

The outcome highlighted Republicans’ willingness to antagonize their traditional allies on Wall Street and corporate America.

Two Democratic senators, Joe Manchin and Jon Tester, voted with Republicans. Both face re-election in 2024 in Republican-leaning states. The Republican-controlled House of Representatives passed the bill on Tuesday.

The White House has said Biden will veto the measure.

Republicans say the provision, which includes programs that collectively invest $12 trillion on behalf of 150 million Americans, would politicize investment by allowing program managers to pursue liberal causes, which they say could hurt performance.

Senate Democratic leader Chuck Schumer accused Republicans of meddling in private investment decisions, saying on the Senate floor that they were “pushing their own ideas down the throats of every company and every investor.”

Department of Labor regulations prohibit program managers from subordinating financial interests to other objectives. Harvard Law School The analysis found mostly cosmetic changes to the more restrictive rule put in place under former President Donald Trump.

Republicans said their resolution would prevent fund managers from making investment decisions primarily on ESG factors. But they acknowledged that this does not stop funds from considering ESG issues as a whole.

“It simply says that the primary measure should be financial return on investment,” said Republican Senator Mike Brown, who sponsored the bill.

The Labor Department said the Trump-era rule does not account for the positive impact ESG investing can have on long-term returns. The industry has been divided over Biden’s rule, with fossil fuel companies opposed and other businesses voicing support.

In 2022, ESG funds were hit by the fallout from the Ukraine war, the collapse of financial markets and US political backlash against the industry. As a result, those funds lagged non-ESG funds for the first time in five years after fossil fuel stocks — which are generally avoided — rose.

Republicans used a tool called the Congressional Review Act, which allows them to override the usual 60-vote Senate threshold to challenge a Labor Department rule.

As the 2024 presidential campaign gets into full swing, they are expected to make similar efforts on other fronts in the coming months.

Report by David Morgan; Additional reporting by Daniel Wiesner in Albany, New York; Editing by Andy Sullivan, Nick Zieminski and Bill Bergrod

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