House Votes to Overturn Rule Allowing ESG Investing in Retirement Plans

The U.S. House of Representatives approved a resolution to overturn a Department of Labor rule passed in November 2022 allowing for, but not mandating, environmental, social and governance investing in retirement plans.

The Congressional Review Act resolution passed by a party-line vote of 216 to 204 on Tuesday, with one Democrat voting with Republican lawmakers. Representative Andy Barr, R-Kentucky, offered the resolution amid calls by Republican House and Senate members in recent months for a repeal of the DOL guidance, saying it would harm everyday retirement savers.

“Proud to join @HouseGOP in passing @RepAndy401Barr’s resolution today to STOP the left from pushing woke, ESG policies upon retirees without their consent,” Debbie Lesko, R-Arizona, wrote on Twitter after the vote.

The resolution now advances to the Senate, which has a 51-49 Democratic majority, though Senator Joe Manchin, D-West Virginia, has publicly sided with Republicans against the rule and called for its repeal. Vice President Kamala Harris can serve as a tiebreaker.

Both national and state Republican lawmakers have publicly opposed ESG investing in recent months, including 25 state attorneys general, fossil fuel-linked companies, and academics filing a complaint in a Texas court against the DOL’s rule in January. Last week, a conservative nonprofit law firm filed another complaint in the U.S. District Court for the Eastern District of Wisconsin, which was quickly followed by new legislation by House Democrats to codify the rule.

Immediately following Tuesday’s House vote, the Congressional Sustainable Investment Caucus led by Representatives Sean Casten, D-Illinois, and Juan Vargas, D-California, came out against the resolution.

“Retirement plan fiduciaries should be free to consider climate change and other ESG factors without regulatory barriers or the threat of litigation,” they wrote in a statement. “The rule from the Department of Labor does not require fiduciaries to consider ESG factors, it merely allows them to do so if it is in the best interest of their plan participants. This CRA resolution is the latest dangerous move in Republican’s (sic) anti-worker and anti-free market agenda.”

On Monday, a group led by organization US SIF: The Forum for Sustainable and Responsible Investment called for House members to vote against the resolution. The organization, backed by asset management firms focused on ESG investing, noted that the rule does not mandate use of ESG, but instead provides it as an option for retirement plan fiduciaries and sponsors governed by the Employee Retirement Income Security Act.

“The rule re-affirms ERISA’s longstanding principle that the duties of prudence and loyalty require ERISA plan fiduciaries to focus on relevant risk-return factors and not subordinate the interests of participants and beneficiaries such as by sacrificing investment returns or taking on additional investment risk,” the organization wrote.

The DOL rule was passed under the administration of President Joe Biden after more than a year of deliberation and public comment. Ultimately, the department decided to allow workplace retirement plan providers and their advisers to consider ESG factors when designing plan investments, saying at the time the rule would “make workers’ retirement savings and pensions more resilient by removing needless barriers, and ending the chilling effect created by the prior administration on considering environmental, social and governance factors in investments.”

The DOL’s 2022 rule overturned a rule from the administration of President Donald Trump that plan fiduciaries could only consider “pecuniary” factors, leaving many fiduciaries to question whether ESG-focused investments could be added to retirement plans as a qualified default investment alternative.