Biden Veto Lets Fund Managers Put Politics Over Investors

[Ubiquitous]

More than halfway through his four-year term in office, President Biden
has issued his first veto: to block a bipartisan bill requiring fund
managers to maximize financial returns for investors rather than
compromise them to pursue so-called ESG objectives like fighting global
warming and pursuing social justice.

The Trump-era rule was simple: plan fiduciaries were required to make
their investment decisions solely based on “pecuniary factors,” meaning
the financial interests of plan participants. Biden’s rule is the
opposite: “a final rule that allows plan fiduciaries to consider
climate change and other environmental, social and governance factors
when they select retirement investments.”

Majorities in the House and Senate favored the Trump approach, with one
Democrat in the House (Jared Golden of Maine) and two in the Senate
(Joe Manchin of West Virginia and Jon Tester of Montana) crossing party
lines to get the bill, HJRes30, onto Biden’s desk.

Biden Labor official Lisa Gomez claimed the Biden rule is actually good
for investors: “Climate change and other environmental, social and
governance factors can be useful for plan investors as they make
decisions about how to best grow and protect the retirement savings of
America’s workers,” and Democratic Senate Leader Chuck Schumer advanced
a similar argument: “America’s most successful asset managers and
financial institutions have used ESG factors to minimize risk and
maximize their clients’ returns.”

This argument is both wrong and self-refuting. Wrong, because the
available data shows companies that prioritize their ESG scores
underperform the market. An analysis by 2ndVote Analytics found that
the 221 politically neutral companies in the S&P900 outperformed the
market significantly since mid-2021: up 2.9% while the overall market
was down. Over the last 10 years, neutrals are +334% while the overall
market is +230%.

Former Blackrock executive Terrence Keeley soured on ESG because, he
wrote in 2022: “an investor who put $10,000 into an average global ESG
fund in 2017 would have about $13,500 today, compared with $15,250 he
would have earned if he had invested in the broader market.”

Seminal research by NYU professor Aswath Damodaran concluded: “There is
a weak link between ESG and operating performance (growth and
profitability), and while some firms benefit from being good, many do
not. Telling firms that being socially responsible will deliver higher
growth, profits and value is false advertising.”

The argument that ESG is good for investors is self-refuting because if
it were true that using ESG factors drives superior returns, then
Democrats would be perfectly happy with the Trump rule’s requirement
that they consider only pecuniary factors – precisely what Biden is
wielding his veto pen to avoid.

The real Biden agenda is to advance a left-wing political ideology on
everything from fossil fuel restrictions (pushing energy prices higher
in the name of global warming) to radical gender and critical race
theory by leveraging woke capital.

The unfortunate casualty will be the retirement security of Americans,
as their accounts are steered towards companies that have higher ESG
scores rather than better financial prospects.

Biden veto is, unfortunately, likely to be sustained. But Republicans
in Congress owe it to their constituents to keep pressing this issue
and attach it to must-pass bills until they either restore the
commonsense principal that fiduciaries are required to maximize
financial returns, or at least make clear to the American people that
Biden and his Democratic allies are responsible for sacrificing their
retirement income on the altar of politics.

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Let's go Brandon!