Bloomberg Law
March 28, 2023, 9:15 AM

Anti-ESG Investing Effort Pivots to New Republican-Backed Bill

Diego Areas Munhoz
Diego Areas Munhoz
Austin R. Ramsey
Austin R. Ramsey

House Republicans are continuing their campaign against a US Labor Department rule on environmental, social, and governance retirement investing despite failing to override President Joe Biden’s veto of a resolution to kill it.

Republican Reps. Andy Barr (Ky.) and Virginia Foxx (N.C.) are working with former DOL Secretary Eugene Scalia on legislation that would modify the Employee Retirement Income Security Act of 1974, Barr told Bloomberg Law. Their aim is to ban retirement plan fiduciaries from considering factors that aren’t strictly financial, like ESG, when investing in retirement accounts, he said.

Biden already vetoed Barr’s bipartisan proposal to overturn a DOL rule that allows fiduciaries to consider ESG factors when investing in retirement accounts. An attempt to override Biden’s rejection failed on the House floor last week after not reaching the required two-thirds majority.

The latest bill comes as Republicans wage a full-fledged attack on socially conscious investing principles from Capitol Hill, attorneys-general offices, and presidential candidacies, arguing that the DOL rule politicizes Americans’ retirement accounts and is another face of the “woke capitalism” they say is making its way to Wall Street.

“We’re going to mark-up a series of bills to counter the ESG movement,” Barr said.

Maximizing Returns

The Ensuring Sound Guidance (ESG) Act, the bill’s expected name, was originally introduced in 2022. But Barr has been working with Scalia, a partner at Gibson, Dunn & Crutcher’s Washington D.C. office, along with former Securities and Exchange Commission Chairman Jay Clayton, to update and strengthen the measure’s language.

Clayton, now a senior policy adviser and attorney at Sullivan & Cromwell LLP in New York, confirmed that he has worked with Barr on the legislation.

“I am happy to share my views on this important subject with members of congress,” Clayton said. “The issue is whether, as a fiduciary, you can consider factors regardless of their impact on risk adjusted returns. I believe that, unless you have informed consent from your client, you cannot depart from your obligation to maximize risk adjusted returns.”

The bill would amend ERISA to mandate that retirement account managers consider only pecuniary factors when investing, and explicitly rule out ESG factors. Barr expects the ESG Act to go through both the House Financial Services Committee—which oversees the SEC—and the Education and the Workforce panel, led by Foxx, which has jurisdiction over ERISA.

Individual investors have the right to invest based on their values, even if those investments prove not to be profitable, Barr said. But fiduciaries managing other people’s retirement accounts must focus solely on maximizing returns, he said.

“If you knowingly choose to allocate your capital in a political way, in a sustainable way, or all you want to do is invest in fossil energy, have at it. It’s a free country,” Barr said.

But “the general obligations of professionals who manage other people’s money and those rules should be driven based on the fiduciary obligation of an asset manager to maximize investment returns,” he said.

‘Very Aggressive Approach’

Ruling out ESG considerations entirely would mark a dramatic escalation in the GOP war on environmentally and socially conscious investing.

“This is a very, very aggressive approach,” said Josh Lichtenstein, an ERISA and benefits partner at Ropes & Gray LLP who specializes in ESG plan investing.

The regulatory ping-pong match between administrations on the issue has so far remained squarely within the confines of ERISA. The law already requires that investments be made in the financial best interest of plan participants and beneficiaries.

The pecuniary-only approach is derived from a pair of Trump-era DOL policies that the Biden administration criticized for having a “chilling effect” on ESG investing.

Many benefits advisers have argued that both the Trump and Biden administration rules largely restated what ERISA already requires, and either discouraged or encouraged ESG considerations by adding or eliminating disclosure and reporting requirements.

“It’s pretty reasonable to suggest that, in some instances, ESG can be something you consider,” said Joanne Roskey, a Miller & Chevalier Chartered member and former Labor Department deputy assistant solicitor.

But prohibiting a particular investment isn’t what ERISA was intended to do, Lichtenstein said. And doing so could burden regulators with the tough responsibility of trying to define ESG as a form of investment methodology or slate of specific market vehicles, he added.

Defense of DOL Rule

Democrats have hit back at Republicans, saying the party is using the ESG label to advance a political agenda. Their efforts to overturn the DOL rule are ultimately anti-free-market, Senate Majority Leader Chuck Schumer (N.Y.) said ahead of the veto override vote last week.

“By turning ESG into a dirty new little acronym, Republicans are trying to force their own views down the throats of every company and every investor,” he said on the Senate floor.

For its part, the Biden DOL has defended its rule as a “neutral” approach to ESG retirement investing. Facing criticism from conservative stakeholders, the department eliminated language in the proposed version of the rule that stated that a risk-return analysis “may often require” ESG considerations.

The Republican position on ESG investing faces added scrutiny from benefits advisers. Instead, they favor the process-based legal strategy to ERISA law, under which fiduciary behavior isn’t judged on outcome, but rather on a careful and thoughtful decision-making analysis.

Banning investments ties fiduciaries’ hands, said Dan Crowley, a partner at K&L Gates LLP in Washington. Investment managers want to be able to consider all relevant monetary risk and reward factors without Republicans’ meddling, he said.

“They are shooting at Marxists but are hitting capitalists,” Crowley said.

To contact the reporters on this story: Diego Areas Munhoz in Washington, D.C. at; Austin R. Ramsey in Washington at

To contact the editor responsible for this story: Laura D. Francis at; Rebekah Mintzer at

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