Biden had his first veto on retirement investment resolution
Biden’s Veto overturns the Social, Environmental and Governance Rules for Retirement Funds: A Reply to Schumer and Schumer
The Senate approved a resolution to overturn a Biden administration retirement investment rule that allows managers of retirement funds to consider the impact of climate change and other environmental, social and governance factors when picking investments.
The rule is being blamed for pushing a liberals agenda on Americans and hurting retirees’ bottom lines, while Democrats think it will help investors.
Biden’s veto reflects the reality of a changed order in Washington, with the Republicans now controlling the House and Democrats out of office.
Opponents of the rule could try to override a veto, but at this point it appears unlikely they could get the two-thirds majority needed in each chamber to do so.
The resolution, authored by GOP Sen. Mike Braun of Indiana, only needed a simple majority to pass. It passed on a vote of 50 to 46 with Democratic Sens. Joe Manchin of West Virginia and Jon Tester of Montana voting with Republicans.
It was advanced by the Republican lawmakers because they had the power to roll back regulations from the executive branch without the need for a vote in the Senate that is needed for most legislation.
The Senate GOP leader,Mitch McConnell said on the Senate floor that the Biden administration wants to allow Wall Street to use workers’ savings to pursue left-wing political initiatives.
Republican Sen. John Barrasso of Wyoming said at a news conference on Tuesday, “What’s happened here is the woke and weaponized bureaucracy at the Department of Labor has come out with new regulations on retirement funds, and they want retirement funds to be invested in things that are consistent with their very liberal, left-wing agenda.”
Supporters of the rule say that it does not require the consideration of environmental or social factors in investment selection.
Senate Majority Leader Chuck Schumer said in defense of the rule that Republicans are “using the same tired attacks we’ve heard for a while now that this is more wokeness. … But Republicans are missing or ignoring an important point: Nothing in the (Labor Department) rule imposes a mandate.”
He said it was not about ideological preference but about looking at the biggest picture possible for investments to minimize risk and maximize returns.
President Biden has the right to veto a Senate and House resolution that would require retirement fund managers to act as true fiduciaries of middle class American retirees, focusing only on financial returns of investments and not on social issues.
The Effect of Environmental, Social, and Governance Factors on Long-Term Financial Performance in a Republican-Biden Against a Washington, DC, Crime Law
Republicans are also working to advance a measure to rescind a controversial Washington, DC, crime law – which critics argue is soft on violent criminals – with a simple majority vote in the Senate.
Many Democrats oppose overriding the DC law. They argue local officials should make their own laws free of congressional interference and decry Republicans as hypocrites since they typically promote state and local rights.
President Biden just issued the first veto of his presidency over Republican legislation that aims to limit retirement fund managers from incorporating environmental, social and governance factors into their financial analysis.
More attention has been paid to open-end funds and exchange-traded funds that have focused on non-traditional investment priorities.
Biden’s veto supports free markets in the hard work of analyzing the long-term determinants of financial performance, including both traditional financial information like sales growth, cost margins and productivity, as well as information related to environmental factors like carbon emissions, social factors like labor practices and governance factors like transparency in reporting.
The term ESG was first introduced in 2004 to distinguish a group of investors who considered ESG issues not based on their values, ethics or a desire to be socially responsible, but rather because they believed these factors impacted financial performance, particularly in the long term. Environmental, social and governance factors are considered along with more traditional financial data in assessments of long-term financial performance.
The logic here is straightforward and anything but political. The value of some assets depends on things like the degree of global warming and our success in transitioning to clean energy. If there is demand for fossil fuels in the foreseeable future, a deep-water oil or coal mine in which investment is still profitable should be worth as much as possible.
Alternately, consider a lithium processing facility or a new battery plant that will only earn a return if battery-powered vehicles make up the majority of the North American fleet in 2050. Investments in processing facilities and battery plants that use fossil fuels will not pay if that is the case.
Are Environmental, Social and Governance Factors Important to Pension Fund Managers? Analyzing the Impact of Government, Human Rights and Social Regulation on Corporate Performance
Environmental factors change the expected value of an investment over time. Whether you voted Republican or Democrat in the last election, you should prefer that the person, organization or algorithm investing your pension takes these factors into account rather than being prohibited from doing so by Republican-sponsored legislation.
Similar arguments can be made for incorporating the likely cost of air or water pollution regulation, human rights lawsuits, minimum wage legislation and anti-money laundering restrictions into forecasts of companies’ earnings and relative performance. Environmental, social and governance factors can have an impact on future revenues, costs and productivity.
Forbidding pension fund managers from incorporating it into their analysis would be akin to forbidding them from considering the impact of artificial intelligence, the Russian invasion of Ukraine or the growing US-China geopolitical rivalry. Each of these factors could be financially material, and asset managers competing in the free market should be able to analyze them, free of government regulation determining what they can and cannot consider to be material.
Fund managers will over-invest in companies that are performing poorly if they invest in companies where managers highlight their ESG focus.
The author of “Financial Crisis, Corporate Governance, and Bank Capital” is Sanjai Bhagat. He is a professor at the University of Colorado. The views expressed here are his own. Read more opinion on CNN.
Why ESG and Non-ESG Investment Matter: Why Corporate Management is Less Disagreed About Employee Satisfaction and Long-Term Global Sustainability
As of December, ESG funds had $2.5 trillion of assets under management across the globe; 83% of these assets are in Europe, 11% in the US. Investment money flowing into global sustainable funds peaked in the first quarter of 2021. In the US, there has been a decline in investor interest in Esg funds.
Similarly, non-ESG or traditional investing (corresponding to unconstrained optimization) will always lead to a more optimal outcome (higher risk-adjusted returns) than ESG investing — or constrained investment in companies that claim an ESG focus.
Using the equal-weighted market portfolio — which gives equal weight to large and small companies — as the benchmark, they find that funds with five globes underperformed funds with one globe by 2.16% annually.
This relation can be seen in competitive labor and product markets. In such an environment, even if corporate managers are solely focused on maximizing long-term shareholder value, they will already be focused on the well-being of employees, customers, the community and the environment. It’s possible to focus on ESG and not be redundant. Managers recognizing that their employees and customers have other options will treat their employees fairly and offer quality products and services to their customers at attractive prices.
A recent paper reports that when corporate managers underperform earnings expectations, they are likely to publicly highlight their focus on ESG. They are not likely to make public ESG statements when their financial performance exceeds expectations.
Finally, to maximize desirable outcomes such as quarterly sales per store, employee satisfaction ratings, etc., businesses use insights from optimization theory, which says that unconstrained optimization will always lead to a more optimal outcome than constrained optimization.
In terms of employee satisfaction, the management of employees who are required to work from the office results in lower employee satisfaction than unconstrained optimization, for example allowing supervisors to decide if working from home a few days a week is ok.
