Political Ping Pong over ESG Continues: Biden Uses First Veto of Presidency to Uphold ESG Rule

The clash on the use of environmental, social, and governance (ESG) factors in making investment decisions continues to wage on. In November 2022, the Department of Labor (DOL) issued a final rule related to ESG investing. The rule allowed retirement plan fiduciaries to take ESG factors into consideration when selecting investments to offer in retirement plans. The rule was a reversal of the Trump Administration’s DOL rule that only allowed plan fiduciaries to take ‘pecuniary’ factors into consideration. The new rule extended the allowance to include the use of ESG factors in selecting a plan’s qualified default investment alternative (QDIA), which was not allowed under the prior rule. The rule also allowed fiduciaries to consider their plan participants’ ‘non-financial preferences’ when selecting investment options.

As reported in our recent blog, a resolution passed in the House and Senate in February that sought to overturn the DOL rule. As promised, President Biden has vetoed the resolution, the first veto of his presidency, keeping the DOL rule intact.

The new DOL rule is optional but provides fiduciaries protection if they offer ESG investments. However, given the politicization of the topic, the pendulum could easily swing the other way in the future. If you offer ESG-focused investments, we recommend including other investment options in the same asset classes to allow for participant choice. Also, the selection and monitoring of ESG funds should follow the same rules and process used for selecting and monitoring all investments offered in the plan.

Multnomah Group is a registered investment adviser, registered with the Securities and Exchange Commission. Any information contained herein or on Multnomah Group’s website is provided for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and, unless otherwise stated, are not guaranteed. Multnomah Group does not provide legal or tax advice. Any views expressed herein are those of the author(s) and not necessarily those of Multnomah Group or Multnomah Group’s clients.

Comment On This Article