Efforts in Congress and in federal courts to overturn the Department of Labor's new rule permitting retirement plan fiduciaries to consider climate change and other ESG factors when selecting investments and exercising shareholder rights are driven more by politics than substance, industry experts said, but the consolidated opposition and the regulatory uncertainty it brings may give plan sponsors pause.
"There's a larger political issue that's being fought and the first front in this battle is the DOL rule when the rule itself is actually not doing most of the things that the battle's about," said Bradford P. Campbell, a Washington-based partner at law firm Faegre Drinker Biddle & Reath LLP and former assistant secretary of labor for the Employee Benefits Security Administration during President George W. Bush's administration.
The new rule — Prudence and Loyalty in Selecting Plan Investments and Exercising Shareholder Rights — took effect Jan. 30 and allows ERISA fiduciaries to consider environmental, social and governance factors. It also maintains the department's position that fiduciaries may not sacrifice investment returns or assume greater investment risks as a means of promoting collateral social policy goals.
The rule is a reversal of two rules promulgated late in the Trump administration that said retirement plan fiduciaries could not invest in "non-pecuniary" vehicles that sacrifice investment returns or take on additional risk and outlined a process a fiduciary must undertake when making decisions about casting a proxy vote.
One day after the House in a 216-204 vote approved a joint resolution under the Congressional Review Act to nullify the rule, the Senate on March 1 followed suit, passing the resolution in a 50-46 vote with backing from two Democratic senators, Joe Manchin of West Virginia and Jon Tester of Montana.
Sen. Mike Braun, R-Ind., who introduced the resolution in February, said at a March 1 press conference that the Labor Department rule jeopardizes retirement savings for millions of Americans for a political agenda. "This is our way to say, 'Enough is enough,'" Mr. Braun said.
House Speaker Kevin McCarthy, R-Calif., sent the resolution to President Joe Biden on March 9. Mr. Biden has promised to veto it, which will mark the first veto of his administration, but had not done so as of press time.