Anti-ESG Measure Targeting 401(k) Rule Headed for House Floor

House Republicans are poised to vote on a measure that would block the US Labor Department from enforcing its ESG retirement investing rule, as Democrats counter by introducing legislation that would codify green 401(k)s into law.

Rep. Andy Barr‘s (R-Ky.) resolution to reverse the DOL rule will hit the floor next week, according to a senior House Republican aide. The rule allows retirement plan decision-makers to consider environmental, social, and corporate governance investment criteria as long as they are in the best financial interest of plan participants.

Meanwhile, Democratic lawmakers in the House have introduced a bill that would explicitly permit retirement plans to consider socially conscious investment factors. The dueling legislative alternatives illustrate the polarizing nature of ESG investing on Capitol Hill and how workplace retirement plans have become the latest front in a partisan political war.

The House-led effort under the Congressional Review Act mirrors a similar Senate GOP resolution that could also come to the floor as early as next week. Sen. Mike Braun (R-Ind.), the resolution’s sponsor, said he is looking for one more supportive senator after winning the backing of every Republican, plus Democratic Sen. Joe Manchin (W.Va.).

Sens. Jon Tester (D-Mont.) or Angus King (I-Maine) could offer the 51st vote needed for the resolution to pass after both said last week they had not decided whether to support it. Both senators are running for reelection in 2024.

However, the extra vote may not be required if either of the Pennsylvania Democrats who have been out for medical reasons—John Fetterman or Bob Casey—don’t return by the time the resolution hits the floor.

If the resolutions receive congressional approval, they would likely prompt President Joe Biden to employ the first veto of his administration.

Regulatory Uncertainty

The Freedom to Invest in a Sustainable Future Act, introduced Thursday by four Democratic representatives, would allow workplace retirement plan decision-makers to consider ESG factors when selecting and monitoring investments and use those factors as collateral benefits to break ties between otherwise equal investment options.

ESG options could be default investments under the bill, and it would prohibit regulators from strapping retirement plans with more demands for documentation or further green investing justifications.

The current level of regulatory uncertainty requires congressional action, Rep. Suzan DelBene (D-Wash.) said in an emailed statement.

“This legislation would provide certainty to workers that these rules will be consistent going forward as they plan their retirement,” she said.

In addition to DelBene, Reps. Sean Casten (D-Ill.), Juan Vargas (D-Calif.), and Dean Phillips (D-Minn.) are also sponsoring the bill.

The Biden administration rule, which took effect last month, undoes two Trump-era regulations limiting retirement plans to “pecuniary,” or financial, investment factors. DOL’s Employee Benefits Security Administration has since said those rules had a “chilling effect” on the potential for ESG investment considerations. The new rule, officials said, seeks to strike a “neutral tone” on ESG investments, by permitting retirement plans to consider any and all relevant factors.

As lawmakers issue competing legislation on the ESG rule, the Labor Department is also facing legal pressure in two separate federal courts to halt it.

Twenty-five Republican attorneys general and several plan participants are arguing that the department promulgated rulemaking defies employee benefit law and the Administrative Procedure Act.

—Emily Wilkins contributed to this report