Biden Uses First Veto to Protect ESG Investing

An anti-ESG bill passed Congress at the beginning of the month.

The debate over ESG investing continued in Washington last Wednesday with President Joe Biden vetoing a hotly contested bill. The bill, which would restrict pension managers from investing in ESG funds, did not clear the last hurdle to becoming law. Investing based on environmental, social, and governance (ESG) criteria has become a partisan issue in recent months. Read on to learn more about the bill, its supporters, and its ultimate fate.

What's in the bill?

The anti-ESG bill vetoed last week is the latest in what has been a tug-of-war within the Department of Labor (DOL) spanning multiple presidential administrations.

Under the Trump administration, the DOL issued a ruling which greatly restricted the ability of pension fund managers to invest plan assets using ESG criteria. In November, Biden's DOL overturned that earlier ruling with a new ruling of their own.

Recently, however, the Biden-era ruling has come under scrutiny by Congress. Through the use of a tool known as the Congressional Review Act, Republicans sought to overturn the most recent, pro-ESG ruling. That Congressional review culminated in a bill which narrowly passed Congress and found its way to the president's desk earlier this month.

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Congressional approval

The odds of a highly partisan bill passing a split Congress are typically very slim. Assuming that members of Congress vote along party lines, such a bill would only pass one chamber. However, in a tightly divided Congress like we have today, a few defectors can have a big impact.

Since its introduction, the anti-ESG bill has been highly partisan. Introduced in February, the bill quickly garnered support from over 40 Republican senators. The bill is the latest attempt by Republicans, who introduced an anti-ESG working group in the House Financial Services Committee in February, to combat "woke" ESG investing.

The bill easily and expectedly passed the Republican majority in the House. However, a duo of defectors in the Democrat-held Senate progressed the bill. Senators Joe Manchin (D-WV) and Jon Tester (D-MT), each facing re-election in generally conservative states, sided with Republicans, sending the bill to President Biden.

Biden's veto

However unlikely the passage of the bill through Congress was, the bill never really stood a chance against President Biden's veto. Upon receiving the bill, Biden used his first presidential veto to return the bill to Congress, unsigned. The bill was doomed from the beginning, as a signature from Biden would reverse a decision from within his own Labor Department.

So, is the bill dead? Technically no, but effectively yes. Schoolhouse Rock would remind you that Congress can overturn a presidential veto with a two-thirds majority in both chambers. However, the two defecting Senate Democrats are a far cry from the required margin.

The recent partisan showdown over ESG investing never really had a chance of passing. However, it does indicate a renewed interest in the ESG investing issue by Republicans in both the House and the Senate. The war over "woke" investing is likely far from over, but President Biden used his first veto to deliver a fleeting victory for Democrats.