Slim Senate Majority Tilts At Windmills Over Biden ESG Rule

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ESG is a concept that has increasingly taken hold in boardrooms and at shareholder meetings across the country. ESG stands for "environmental, social, and governance." Companies that embrace the ESG philosophy try to analyze and either avoid or internalize risks in these areas -- risks which may have, in the past, been passed along to the public at large, then often borne after-the-fact through lawsuits and regulatory actions.

Though corporate charitable giving is up in recent years, to the tune of about $21 billion annually, when it comes to their operations corporations are still all about making money for their shareholders. Companies are not focused on ESG issues just out of the goodness of their hearts. They are making calculations. Apparently, many of those in the C-suite, and ultimately the shareholders whose interests the executives represent, believe that a reckless disregard for ESG impacts is not ultimately good for maintaining a company as a going concern.

The fact that those companies which focus on ESG issues have voluntarily chosen this does not seem to matter all that much to today's iteration of the GOP. Congressional Republicans decry ESG investing as "woke capitalism."

Most recently, a slim Senate majority voted to overturn a rule from the Biden Labor Department which made it easier for fund managers to consider ESG issues. Republicans were joined in the 50-46 vote by two Senate Democrats: Joe Manchin and Jon Tester.

Chuck Schumer, the Senate's top Democrat, accused Republicans of "forcing their own views down the throats of every company and every investor" by interfering with private investment decisions. Indeed, the Labor Department rule the Senate voted to overturn affects $12 trillion invested by plans that are held by some 150 million Americans.

However, both sides may be overestimating the importance of this particular regulation. A Harvard Law School analysis indicated that the rule made mostly cosmetic changes to a previous one put in place under the Trump administration.

The current iteration of this Labor Department rule prevents plan managers from having to subordinate financial interests to all other objectives. In other words, the rule untethers fund managers' hands to allow them to decide what interests are most important at any given time; actually making any decision based on ESG factors is voluntary. Were Republicans to succeed in overturning the rule, it would not stop fund managers from considering ESG issues entirely. Rather, this would indicate that companies' top priority should always be financial return on investment.

According to the Labor Department, ESG investing can have a positive impact on long-term returns as opposed to merely short-term gains. Within the business community, most types of companies have voiced support for the Biden administration's version of the rule (although fossil-fuel companies have been adamantly opposed).

President Biden intends to veto the anti-ESG measure, which will leave the current version of the Labor Department's rule intact.

It is not entirely clear what anti-ESG Republicans hope to accomplish with these sorts of votes. With Biden in the White House, and no clear path to a veto-proof majority, they are destined to be unsuccessful in implementing any actual policy changes.

It is somewhat reminiscent of the 50 plus times Republicans ineffectually voted to repeal Obamacare only to fail to do anything to replace the healthcare law when they later did capture the presidency and achieved a congressional majority. Turned out voters had grown to appreciate the Affordable Care Act, and the GOP failed in its efforts to convert opposition to Obamacare into a winning campaign issue.

It is difficult to see how the results of anti-ESG votes are going to go down in history any differently from anti-Obamacare votes. Most Americans are not familiar with the ESG concept, but when it is explained to them, huge majorities -- as many as 84 percent -- agree with the idea that companies should take into account how they treat their employees, whether they are good environmental stewards, their impact on local communities, and other ESG factors. There is no meaningful constituency for taking down so-called "woke" investing.

Allowing companies to make decisions based on ESG principles increases freedom. It seems to be good business, and it is broadly popular among Americans, to the extent they are aware of the idea at all. Regardless of who is in the White House, any lawmakers fighting against corporate ESG decision-making are tilting at windmills.

Jonathan Wolf is a civil litigator and author of Your Debt-Free JD (affiliate link). He has taught legal writing, written for a wide variety of publications, and made it both his business and his pleasure to be financially and scientifically literate. Any views he expresses are probably pure gold, but are nonetheless solely his own and should not be attributed to any organization with which he is affiliated. He wouldn't want to share the credit anyway. He can be reached at jon_wolf@hotmail.com.