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ESG in retirement: On vetoes and getting votes

President Joe Biden vetoed a Republican-led joint resolution to nullify a Department of Labor rule that will allow retirement plan fiduciaries to incorporate ESG information in investment decision-making. 

Piggy bank

Image via Shutterstock/Brian A. Jackson

Republicans have managed to bring the culture wars — typically waged in venues close to hearth and home, like who gets to use what bathroom and whether your kid’s teacher says "gay" — into the staid and boring realm of retirement savings. 

On Monday, President Joe Biden vetoed a Republican-led joint resolution to nullify a Department of Labor rule that will allow retirement plan fiduciaries to incorporate ESG information in investment decision-making. 

What does this portend for both the future-proofing of Americans’ retirement investments and for the next act in ESG pushback theater? 

Freedom goes both ways

The "freedom to" is a conception of liberty that the American political right has made a bedrock to its brand. But the debate over ESG has revealed just how little ground ideological roots can hold.

On the one side, ESG has been over-hyped as solving things it doesn’t — climate and social impact. And on the other, there’s been a conflation of ESG with things it’s not — the financial tool of a woke political cabal. 

The fight waged against the "Prudence and Loyalty in Selecting Plan Investments and Exercising Shareholder Rights" rule is one of the more illustrative examples of how this is playing out.

Taking a step back: When red state treasurers began a boycott on doing business with financial firms thought to be discriminating against the fossil fuels industry, the ground may have been mushy, but it was solid enough to build an anti-ESG camp on. That is, statements made by major financial firms on their commitment to sustainability, social justice or an economy sans carbon can and were used against them. 

But the fight against ESG as it manifests in opposition to the Labor Department rule reads like an official abdication of the GOP’s ideological lifeblood of freedom — or, the party that "has always stood for freedom, prosperity and opportunity."

Contrary to what prominent Republicans have argued, what the Labor Department rule really offers is the freedom to consider ESG factors, not a compulsion to do so. A fiduciary fervently opposed to the use of ESG information or one wary of supporting Trojan horses carrying ESG infidels has the freedom to keep on investing without regard for that criteria. 

Keeping value for the long term

That the ESG pushback has stripped the political right of one of its most consistent ideological messages — that the government should keep its regulatory hands off the free market — may not matter as much as it appears. "Truthiness" about what ESG is or isn’t may matter more in the end.

Either way, the ESG tug-of-war game has grown more intense. 

Red state treasurers were first to the rope. Now a multi-state coalition of Democratic attorneys general are fighting back against red state governors and Republican AGs' effort to overturn the Labor Department rule, stating that the "consideration of [ESG] factors by retirement investment plans is an effective, well-reasoned rule, and there is no basis for overturning it."

Will regulatory policy in the United States ever meet what’s required for the Paris Agreement goals to be realized or heed the most recent Intergovernmental Panel on Climate Change report’s "final warning"? I’m at the Ceres Global conference this week looking to learn more on that front.

Regardless of whether the answer to that question is "imminently" or "never," the 150 million or so Americans invested in the stock market — the majority with access through retirement funds — should be afforded the freedom from the erosion of their funds’ value and the freedom to retire securely.

[This article was reprinted from GreenFin Weekly, a free weekly newsletter. Subscribe here.]

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