“Both the congressional resolution and the presidential veto represent a contentious battle,” writes Alexandra Walsh L’24, WG’26 for The Regulatory Review.
At The Regultory Review, Alexandra Walsh L’24, WG’26 explores the recent political tensions surrounding ESG investing and the impact of the presidential veto on the issue.
From The Regulatory Review:
More than two years into his presidency, President Joseph R. Biden issued his first veto on a resolution to overturn a retirement investment rule. The rule allows investment decision-makers to consider environmental, social, and governance (ESG) factors when selecting investments.
In January, the U.S. Department of Labor amended its regulations under the Employee Retirement Security Act of 1975 (ERISA) to permit—but not require—investment decision-makers to consider ESG factors when selecting 401(k) investment options. The Labor Department had previously proposed the new rule in November in response to an executive order directing federal agencies to review and amend regulations in conflict with environmental protection and public health.
Under ERISA, investment decision-makers—also known as fiduciaries—must act prudently and for the exclusive benefit of plan participants and beneficiaries. Prior to the new rule, ERISA regulations required fiduciaries to select investments solely based on financial considerations such as risk-adjusted capital ratio, which measures an institution’s ability to weather economic downturn. The new rule, however, now includes a provision clarifying that fiduciaries may account for participants’ ESG preferences when constructing a roster of prudent investment options.
In an attempt to nullify the new rule, Congress passed a joint resolution of disapproval under the Congressional Review Act (CRA). The CRA establishes a review period during which Congress may submit a resolution to overturn a new federal agency rule and prevent the issuing agency from creating a similar rule in the future. To invalidate the regulation, the sitting president must sign the CRA resolution or Congress must pass the resolution over the president’s veto by two thirds of both houses.
In his veto message, President Biden stated that “retirement plan fiduciaries should be able to consider any factor that maximizes financial returns…that’s not controversial—that’s common sense.”
But not everyone agrees… .
The Regulatory Review is a daily online publication that provides accessible coverage of regulatory policymaking and enforcement issues across a full range of regulatory topics and from a variety of perspectives.
Launched in 2009 and operating under the guidance of Cary Coglianese, Edward B. Shils Professor of Law and Professor of Political Science, The Review is edited by students at Penn Carey Law. It is part of the overarching teaching, research, and outreach mission of the Penn Program on Regulation (PPR), which draws together more than 60 faculty from across the University of Pennsylvania.