More than halfway through his four-year term in office, President Biden is expected to issue his first veto: to block a bipartisan bill requiring fund managers to maximize financial returns for investors rather than compromise them to pursue objectives like fighting global warming and pursuing social justice.
The Trump-era rule was simple: Plan fiduciaries were required to make their investment decisions solely based on “pecuniary factors,” meaning the financial interests of plan participants. Biden’s rule is the opposite: “A final rule that allows plan fiduciaries to consider climate change and other environmental, social and governance factors when they select retirement investments.”
Majorities in the House and Senate favored the Trump approach, with one Democrat in the House (Jared Golden of Maine) and two in the Senate (Joe Manchin of West Virginia and Jon Tester of Montana) crossing party lines to get the bill, HJRes30, onto Biden’s desk.
Biden Labor Department official Lisa Gomez claimed the Biden rule is actually good for investors: “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. Democratic Senate Leader Chuck Schumer advanced a similar argument: “America’s most successful asset managers and financial institutions have used ESG factors to minimize risk and maximize their clients’ returns.”
This argument is both wrong and self-refuting. Wrong, because the available data shows companies that prioritize their environmental, social, and corporate governance (ESG) scores underperform the market. An analysis by 2ndVote Analytics found that the 221 politically neutral companies in the S&P900 outperformed the market significantly since mid-2021: up 2.9% while the overall market was down. Over the last 10 years, neutrals are +334% while the overall market is +230%.
Former Blackrock executive Terrence Keeley soured on ESG because, he wrote in 2022: “an investor who put $10,000 into an average global ESG fund in 2017 would have about $13,500 today, compared with $15,250 he would have earned if he had invested in the broader market.”
Seminal research by NYU professor Aswath Damodaran concluded: “There is a weak link between ESG and operating performance (growth and profitability), and while some firms benefit from being good, many do not. Telling firms that being socially responsible will deliver higher growth, profits and value is false advertising.”
The argument that ESG is good for investors is self-refuting because if it were true that using ESG factors drives superior returns, then Democrats would be perfectly happy with the Trump rule’s requirement that they consider only pecuniary factors – precisely what Biden is wielding his veto pen to avoid.
The real Biden agenda is to advance a left-wing political ideology on everything from fossil fuel restrictions (pushing energy prices higher in the name of global warming) to radical gender and critical race theory by leveraging woke capital.
The unfortunate casualty will be the retirement security of Americans, as their accounts are steered toward companies that have higher ESG scores rather than better financial prospects.
A Biden veto is, unfortunately, likely to be sustained. But Republicans in Congress owe it to their constituents to keep pressing this issue and attach it to must-pass bills until they either restore the commonsense principal that fiduciaries are required to maximize financial returns, or at least make clear to the American people that Biden and his Democratic allies are responsible for sacrificing their retirement income on the altar of politics.