President Biden vetoed a House resolution that would have struck down a new U.S. Department of Labor rule that allows retirement plan fiduciaries to consider all financially relevant factors in investment decisions, including environmental, social, and governance considerations.

The President said in a statement that there is extensive evidence showing that ESG factors can have a material impact on markets, industries, and businesses but the resolution would force retirement managers to ignore these relevant risk factors.

Read President Biden's full statement on his veto here: https://t.co/YmZCSTyrsP

— US SIF (@US_SIF) March 20, 2023

“This resolution would prevent retirement plan fiduciaries from taking into account factors, such as the physical risks of climate change and poor corporate governance, that could affect investment returns,” added President Biden. “Retirement plan fiduciaries should be able to consider any factor that maximizes financial returns for retirees across the country.  That is not controversial — that is common sense.”

In November 2022 the U.S. Labor Department finalized a rule to allow retirement plans governed under the Employee Retirement Income Security Act in 1974 (ERISA) to consider ESG factors in their investments. The Biden administration put the rule in place to counter the Trump administration’s legislation that discouraged retirement plans from considering ESG factors.

Jon Hale, director of sustainability research for the Americas at Sustainalytics, said in a blog: “Under Erisa, a retirement plan fiduciary must base decisions on factors that the fiduciary reasonably determines are financially material to the plan’s investments. That has not changed and is part of the so-called duty of prudence. What has changed is the new rule makes clear that these factors may include climate change and other ESG issues.”

Here are 4 key takeaways for investors about the new rule for ESG investing in retirement plans: https://t.co/9vGdqBnKPA

— Morningstar, Inc. (@MorningstarInc) March 20, 2023

Hale continued that the current Labor Department concluded that the previous rule was deterring retirement-plan fiduciaries from acting prudently on behalf of beneficiaries to enhance the performance of their investments.

“Keep in mind the new rule does not mandate retirement plan fiduciaries to consider climate change or other ESG issues,” added Hale. “It simply removes the barriers to doing so and says fiduciaries should treat ESG as they would any other relevant factor, based on the fiduciary standards of prudence and loyalty.

Ceres, a nonprofit organization working with capital markets to solve sustainability challenges, welcomed President Biden’s veto as a return to neutrality under ERISA and neither specifically promotes nor discourages consideration of factors such as climate change or governance.

thanks to @Potus for assuring our freedom to invest responsibly.. https://t.co/SiUOxq3l0P

— Mindy Lubber (@MindyLubber) March 20, 2023

Steven Rothstein, managing director of the Ceres Accelerator for Sustainable Capital Markets at Ceres, said in a statement: “To require retirement plan professionals to ignore significant financial risks strips away the market’s freedom to make best investment decisions and endangers the security of the life savings of working Americans. With climate-related disasters increasingly result in hundreds of billions of dollars in annual losses in the U.S., retirement savers must be able to trust that their plan fiduciaries can effectively evaluate and safeguard against these concerns.”

The American Retirement Association applauded the veto of a measure that is said would undermine the ability of retirement plan fiduciaries to freely consider the best interests of retirement plan participants and does not require consideration of ESG factors. The Association said the regulation clearly states that ESG factors may only be considered if the fiduciary to the plan determines they are relevant to such financial interests.

To encourage choice in retirement saving, @POTUS vetoed a measure that the administration says would block plan fiduciaries from freely considering the best interest of workers and savers in #retirementplan #investment offerings. Via: @NAPA401K https://t.co/kfwTEdU3EC#ESG

— American Retirement Association (@usa_retirement) March 20, 2023

Brian Graff, chief executive of the American Retirement Association, said in a statement: “ERISA has long held that the financial interests of retirement plan participants are to be the sole consideration of fiduciaries in selecting and monitoring plan investments. We enthusiastically support the language and intent of this important regulation in codifying that interpretation, and in providing plan fiduciaries the freedom they need and deserve to fulfill their important duties”.

Green America, which represents 250,000 individual consumers and investors and nearly 2,000 businesses and investment firms, also applauded President Biden for vetoing the resolution which would have limited the scope of what pension fund managers can take into account and said it maintains the ability of investors to consider any and all material risks and opportunities.

President Biden has vetoed a Congressional resolution attacking #ResponsibleInvesting. His veto will allow retirement funds to consider all relevant risks and opportunities when making investments.#ESG #SociallyResponsibleInvesting

Our statement: https://t.co/LMWvP6hhT7

— Green America (@GreenAmerica) March 20, 2023

Cathy Cowan Becker, responsible finance campaign director at Green America, said in a statement: Decades of investment experience prove that taking ESG  criteria into account provides competitive returns by giving investors a greater understanding of risk and opportunity.”

U.S. Senator Bill Cassidy, M.D. (R-LA), ranking member of the Senate Health, Education, Labor, and Pensions (HELP) Committee, condemned the President’s veto.

“Asset managers’ only priority should be helping Americans achieve the best return for their retirement, not using their clients’ money to fund a political agenda,” said Dr. Cassidy. “By vetoing this bipartisan resolution, President Biden is jeopardizing the retirement of 152 million Americans.”

Thomas DiNapoli, New York State Comptroller, said:

Thank you to @POTUS for his veto of this misguided attempt to harm the retirement security for millions of hardworking Americans. https://t.co/8optIlMV5d

— Tom DiNapoli (@NYSComptroller) March 20, 2023