[Congressional Record Volume 169, Number 38 (Tuesday, February 28, 2023)]
[House]
[Pages H932-H940]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]
PROVIDING FOR CONGRESSIONAL DISAPPROVAL OF THE RULE SUBMITTED BY THE
DEPARTMENT OF LABOR RELATING TO ``PRUDENCE AND LOYALTY IN SELECTING
PLAN INVESTMENTS AND EXERCISING SHAREHOLDER RIGHTS''
Ms. FOXX. Mr. Speaker, pursuant to House Resolution 166, I call up
joint resolution (H.J. Res. 30) providing for congressional disapproval
under chapter 8 of title 5, United States Code, of the rule submitted
by the Department of Labor relating to ``Prudence and Loyalty in
Selecting Plan Investments and Exercising Shareholder Rights,'' and ask
for its immediate consideration in the House.
The Clerk read the title of the joint resolution.
The SPEAKER pro tempore (Mr. Valadao). Pursuant to House Resolution
166, the joint resolution is considered read.
The text of the joint resolution is as follows:
H.J. Res. 30
Resolved by the Senate and House of Representatives of the
United States of America in Congress assembled, That Congress
disapproves the rule submitted by the Department of Labor
relating to ``Prudence and Loyalty in Selecting Plan
Investments and Exercising Shareholder Rights'' (87 Fed. Reg.
73822 (December 1, 2022)), and such rule shall have no force
or effect.
The SPEAKER pro tempore. The joint resolution shall be debatable for
1 hour, equally divided and controlled by the chair and ranking
minority member of the Committee on Education and the Workforce or
their respective designees.
The gentlewoman from North Carolina (Ms. Foxx), and the gentleman
from Virginia (Mr. Scott), each will control 30 minutes.
The Chair recognizes the gentlewoman from North Carolina (Ms. Foxx).
General Leave
Ms. FOXX. Mr. Speaker, I ask unanimous consent that all Members have
5 legislative days to revise and extend their remarks and submit
extraneous material on the resolution under consideration.
The SPEAKER pro tempore. Is there objection to the request of the
gentlewoman from North Carolina?
There was no objection.
Ms. FOXX. Mr. Speaker, I yield myself such time as I may consume.
Mr. Speaker, I rise in support of H.J. Res. 30, a Congressional
Review Act resolution nullifying the Biden administration's attempt to
politicize the retirement savings of Americans.
ESG investing puts the future of millions of Americans in jeopardy.
Due to Biden's reckless economic policies, too many Americans are
worried about the rising costs of living. Diverting retirement savings
to fund social justice causes will make this problem even worse. For
current retirees, the situation is especially salient.
Last year, the Biden Department of Labor published a rule allowing
retirement plan fiduciaries to consider environmental, social, and
governance, ESG, factors for making investment decisions and exercising
shareholder rights.
The rule removed commonsense protections for retirement savings
established by the Trump administration, which ensured that retirement
plan fiduciaries evaluate investments and exercise shareholder rights
based only on the financial benefits to participants and beneficiaries.
That is what retirement savers expect.
Now, thanks to Democrats, workers can be placed into ESG investment
vehicles by default. If a fiduciary finds that two investments are
equal, the fiduciary is allowed to use collateral ESG factors to break
the tie without justifying or documenting that decision.
While my colleagues on the other side of the aisle have argued that
the Biden rule is neutral, they have done a poor job of hiding the
administration's true intentions.
The Department issued the rule in response to two executive orders on
climate change and the explanation of the rule is littered with
Democrats' preferred political projects, such as labor relations,
climate change, and workforce and corporate diversity.
Further, DOL officials have repeatedly stated that they will pursue
additional actions concerning ESG and retirement plans.
The left is using ESG investment criteria as a political tool to
cudgel companies into accepting leftist policies. This is how the left
always operates. This is just the first step.
[[Page H933]]
If we let this continue, the left will use ESG investing to push
noncompliant companies out of the marketplace. This is pernicious and
it is hypocritical.
It is unacceptable to encourage fiduciaries to sacrifice the savings
of Americans to the orthodoxy of the woke left. In fact, this is
prohibited under the Employee Retirement Income Security Act of 1974,
ERISA, as affirmed by the Supreme Court.
Yet, the Biden administration's rule permitting and encouraging
retirement plan fiduciaries to consider ESG when investing workers'
savings flips ERISA on its head.
By paving the way for ESG investing in employer-sponsored retirement
plans, President Biden is threatening the retirement savings of
Americans. Such a fundamental change to ERISA should be debated and
considered in Congress, not enacted through executive fiat illegally.
Americans invest to secure their future, not to fund the Green New Deal
or leftist pet projects.
Fiduciaries governed by ERISA should not be allowed to make
investments they know will not pay off. A fiduciary's most important
responsibility is to make investments that are in the financial
interests of workers and retirees.
It is time to stop this madness. That is why I support the resolution
to nullify the Biden administration's destructive retirement plan rule.
Mr. Speaker, I urge my colleagues to put workers and retirees above
politics and vote for this resolution.
Mr. Speaker, I reserve the balance of my time.
Mr. SCOTT of Virginia. Mr. Speaker, I yield myself such time as I may
consume.
Mr. Speaker, I rise in opposition to H.J. Res. 30, a Congressional
Review Act joint resolution of disapproval to nullify a popular and
sensible rule issued by the Biden-Harris administration last year.
Workers should be able to invest their retirement savings in a way
that reflects their values, such as combating climate change, without
sacrificing investment returns.
That is why the Biden-Harris administration issued a rule to clarify
that retirement plan fiduciaries may consider the economic effects of
climate change and other environmental, social, and governance factors,
or ESG factors, when they make investment decisions for participants in
retirement plans.
Now, to be clear, this rule is not an ESG mandate.
Additionally, the rule does not change the fiduciary standard to
which professionals who make investment decisions for retirement plans
are bound. They must still prioritize the interests of retirement plan
participants and cannot sacrifice investment returns to pursue ESG
goals.
Let's be clear. Consideration of ESG factors is not at odds with
making a profit. In fact, workers' profit is still central, but if a
company has negative externalities, such as carbon-intensive business
practices, vulnerability to sea level rise, high liability risks, or a
record of mistreating workers who may go on strike, its stock could
suffer in the long term.
{time} 1415
Workers often contribute to their retirement for decades before
drawing down on their savings, so it makes sense that retirement plan
beneficiaries must consider the long-term time horizon when making
investment decisions.
Finally, there is widespread support for the Biden-Harris
administration's rule. Of the comment letters submitted on the proposed
rule, 83 percent of the letters submitted by institutions like
corporations, financial firms, and labor organizations supported the
rule.
Over 97 percent of the letters submitted by individuals supported the
rule. Simply put, the Biden-Harris rule reflects the best interests of
the American people and our economy.
We should not get rid of this popular and reasonable rule by this
resolution. The rule just simply allows retirement plan fiduciaries to
appropriately consider ESG factors.
Retirement fiduciaries, not House Republicans, are best positioned
and bound by law to make prudent investment decisions on behalf of
retirement savers.
Mr. Speaker, I reserve the balance of my time.
Ms. FOXX. Mr. Speaker, I yield 5 minutes to the gentleman from
Kentucky (Mr. Barr), the originator of this CRA.
Mr. BARR. Mr. Speaker, I thank the gentlewoman, the chairwoman of the
committee, for her leadership in fighting the politicization of capital
allocation and the politicization of retirement savings.
Mr. Speaker, today House Republicans stand on the side of retail
investors. We stand up for millions of Americans around the country who
are increasingly asking themselves this simple question: When will I be
able to retire?
This Congressional Review Act measure that I am offering is a
bipartisan, bicameral joint resolution, disapproving of a Department of
Labor rulemaking that will politicize Americans' retirement accounts
and jeopardize their retirement security.
This measure simply states that retirement plan sponsors be required
to prioritize maximum financial returns for investors ahead of
nonpecuniary factors like environmental, social, and governance
standards, a political agenda.
We do so in a moment where one in five Americans have saved nothing
for their retirement, including one in three baby boomers, the
generation closest to retirement.
We do so in a moment when 78 percent of Americans are either
extremely or somewhat concerned about affording a comfortable
retirement.
We do so in a moment where the gap between the amount of money that
Americans have saved for retirement and the amount that they will need
for retirement is $3.8 trillion.
That is why, Mr. Speaker, Congress must act to block the Biden
administration's recent rule that green-lights so-called ESG investing
in millions of Americans' retirement plans, plowing them into less
diversified, higher fees, and lower-performing portfolios at precisely
the time that we need to maximize financial security for Americans
approaching retirement.
So let's consider the facts. According to a recent Wall Street
Journal report, ESG funds carry 43 percent higher fees than non-ESG
funds.
That is what they want. They want Americans to be forced into higher
fee funds. A recent study from NYU and the University of Southern
California found that over the past 5 years, global ESG funds have
underperformed the broader market by 250 basis points per year, an
average of 2.6 percent lower return than non-ESG funds.
This stands to reason because ESG funds are, by design, less
diversified. This is investing 101.
When you discriminate against energy stocks, and you are heavy in
tech, when you are in a tech sell-off, and when energy underperforms
the market, who loses? The American retail investor who is unwittingly
invested in these fraudulent, cancerous funds.
This means that an investor who put $10,000 into an average global
ESG fund in 2017 would have realized a $1,750 lower return than if they
had invested in the broader market.
While some of my friends on the other side of the aisle argue that
ESG investing is actually driven by investors themselves, not
ideologues at asset management firms and the White House who want to
push their environmental or social causes at the expense of retail
investors, a 2021 study conducted by the University of Chicago and
FINRA proves investors largely do not care.
Mr. Speaker, 21 percent of investors don't even know what ESG stands
for. Is that popular? Is that what popular ESG is?
And this neutrality nonsense. Look, nobody is saying you can't invest
based on your values, but this bill would steer people unwittingly into
these funds.
The status quo does not deny people to invest based on their values.
It just says that the default has to be to maximize returns.
So, Mr. Speaker, this debate today is not about investor protection.
It is about the ability of investors to maximize returns.
It is also about energy security. Even if you don't have a retirement
account, this radical ESG movement is hitting your wallet.
Since President Biden took office, his administration has waged a war
on
[[Page H934]]
American energy production; not just holding up leases or blocking
infrastructure, but through financial regulation and the weaponization
of financial regulation to divert resources and capital and financing
away from the American energy sector.
There has been a 25 percent decline in investment in natural gas and
in oil investments since 2021, and the result? Gas prices are up 40
percent, and diesel prices are almost double.
Household energy costs hit a 10-year high this winter, costing
average American families $1,200, according to a report from the
National Energy Assistance Directors Association.
These price hikes and the decline in investment in our energy supply
come at the exact time that the Biden administration itself estimates
that by 2050, almost half of our Nation's energy supply will be made up
of oil and natural gas.
Mr. Speaker, we need more, not less, capital investment and financing
of American energy.
I implore the administration. It is time for you to end your assault
on energy production that is fueling 40-year high inflation.
We, as Members of Congress, cannot allow this administration to
continue to perpetrate their war on American energy at the expense of
investors.
Mr. SCOTT of Virginia. Mr. Speaker, I yield 2 minutes to the
gentleman from Illinois (Mr. Casten), the co-chair of the Congressional
Sustainable Investment Caucus.
Mr. CASTEN. Mr. Speaker, 15 years ago, more than half of U.S.
electricity came from coal. Today, it is less than 20 percent.
We now generate more energy from renewables than from coal. This
isn't anti-energy. It is about cheap energy.
In 2022, last year, 10 percent of all vehicle sales in the United
States were EVs. That was up from 6 percent the year before, 2 percent
the year before that.
ExxonMobil and Chevron today are trading at about 8 to 9 times their
earnings. I would compare that to companies like First Solar and Tesla
that are trading to 40 to 60 times earnings.
Let me dumb this down for you all. Mr. Speaker, 10 years ago, if you
shifted your investment portfolio away from fossil energy toward
climate-friendly investments, you would be richer today.
Now, my Republican colleagues, you all talk a good game about how you
are into personal freedom, and yet you are taking individual investors'
freedom away from them with this bill.
You all talk a good game about how government should not be picking
winners and losers. Why do you all keep picking losers?
In 2011, a guy named Hugo Chavez redirected Venezuelan oil worker
pensions into a Ponzi scheme run by a political ally.
My Republican colleagues a couple weeks ago voted to oppose socialism
in all its form. I am thinking that Hugo Chavez guy seems pretty smart.
Let's do the same thing.
You know what you call capitalism when you are losing? Woke
capitalism.
So if you all are afraid of free markets, if you want to destroy
workers' pensions, if you oppose individual freedom, if you want to
force your constituents to invest in proven losers, then please vote
for this resolution. Be honest about your values.
For everyone else, vote ``no.'' I plan to do so proudly and honestly.
The SPEAKER pro tempore. Members are reminded to direct their remarks
to the Chair.
Ms. FOXX. Mr. Speaker, I yield 1 minute to the gentleman from Georgia
(Mr. Allen).
Mr. ALLEN. Mr. Speaker, over the past 2 years, one thing has become
clear: This administration cares more about advancing its radical Green
New Deal agenda than about the financial well-being of the American
people.
We have seen it with their energy policy, but the latest example is
the Biden administration's rule to inject woke ESG factors into
workers' retirement accounts.
Thanks to President Biden's economic policies, workers' retirement
savings were down 10 percent in 2022 compared to 2021. Why is this
administration doubling down to further jeopardize Americans'
retirement?
Retirement plan sponsors have two responsibilities to their clients:
maximize returns and minimize risk. The Biden rule would allow asset
managers to impose a political agenda on Americans at the expense of
retirement savings.
The Biden administration should not be jeopardizing Americans'
retirement by allowing plan managers to gamble their savings on ESG
funds that have proven to be riskier and charge steeper fees.
That is why I cosponsored this bill with my friend, Andy Barr, to
use our authority to nullify the Biden rule and protect Americans'
hard-earned retirement savings from politically motivated
mismanagement.
Mr. SCOTT of Virginia. Mr. Speaker, I yield 2 minutes to the
gentleman from California (Mr. DeSaulnier), the distinguished ranking
member of the Subcommittee on Health, Employment, Labor, and Pensions.
Mr. DeSAULNIER. Mr. Speaker, I thank the gentleman for yielding.
The Department of Labor's environmental, social, and governance rule
is good for retirees, and it is good for the American economy.
Allowing ESG considerations can help financial professionals identify
investments that will be sustainable in the long term and in the best
interest of their clients.
The rule is not an ESG mandate. It simply clarifies that the
professionals who make investment decisions for retirement plans do not
violate their fiduciary duties by merely considering ESG factors.
Existing law already says that these professionals' primary purpose
is to make the best financial choices for the plans, and this rule does
not change that at all.
It merely is a recognition that if a company is inherently risky
because of the business they do or their internal practices, its stock
could suffer in the long run.
Just like American consumers can be motivated to disinvest from
companies that pollute or mistreat their workers, now investors will
have the same abilities.
As the ranking member of the Subcommittee on Health, Employment,
Labor, and Pensions, I have seen overwhelming support for this rule,
especially from the financial industry.
Rolling it back would be a significant step backward. I strongly
oppose H.J. Res. 30 and encourage all Members to do the same so they
can leave retirement plan decisions to the retirees and the
professionals they respect and they work with.
Ms. FOXX. Mr. Speaker, I yield 3 minutes to the distinguished
gentleman from Virginia (Mr. Good).
Mr. GOOD of Virginia. Mr. Speaker, today the House can repeal a
policy from the Department of Labor that harms Americans who simply
want to save for retirement.
This new rule from the Biden administration says that investment
decisions in employer-sponsored retirement plans can be based on
climate change and other environmental, social, or governance factors.
So typically without the knowledge of the retirees, their investment
funds can be invested in underperforming investments that subsidize
unreliable and unaffordable energy.
Congress never originally intended for 401Ks to be used to advance
the priorities of the phony climate movement or to push a social
justice agenda.
They were simply intended to help people to have the resources they
need in retirement. If ESG-based stocks are higher performing, they
would get those investment dollars anyway without this new rule.
But Americans inherently know that investing should be about
evaluating risk and return from a financial point of view.
Hardworking Americans want to know their investments have strong
economic fundamentals that will help them build wealth over a lifetime
of work.
If Congress is successful in overturning this rule, the investing
standard will return to one based on financial factors only.
It is bad enough that Bidenflation has eroded the spending power of
many retirement savings accounts. Matter of fact, the average
retirement account is down 30 percent over the last 2 years.
Many retirees are having to change their retirement plans or to
downsize or to work longer. There is even an increase in the number of
Americans who
[[Page H935]]
are borrowing or withdrawing from the retirement accounts before
retirement, just trying to make ends meet.
{time} 1430
Still, the Department of Labor used executive fiat to leverage
trillions of dollars that would be vested in retirement plans to
advance their woke agenda that can't pass Congress.
With this vote, Congress can put some checks and balances to work for
the American people, and I urge my colleagues in the House and the
Senate to protect the retirement plans of hardworking Americans by
voting for this bill.
Mr. SCOTT of Virginia. Mr. Speaker, I yield 2 minutes to the
gentlewoman from Minnesota (Ms. Omar), a distinguished member of the
Committee on Education and the Workforce.
Ms. OMAR. Mr. Speaker, I rise today in strong opposition to H.J. Res.
30.
When we, as Americans, are given the opportunity to know what
investments to make, the kind of investments that we can make, and the
kind of impacts that they will have, that matters. That choice should
always be with each one of us. The investments that we make might have
an impact on the rest of the world.
Many of us would be outraged if we knew that our investments went
toward forced labor activities in China and other parts of the world.
Yet, this resolution would make it difficult for hardworking Americans
to determine what investments are being made in their name.
Our constituents deserve the freedom to access this information and
to have the right to ensure that their money is being invested in a way
that is aligned with their values.
Mr. Speaker, I urge my colleagues to reject this resolution and
protect the rights of Americans to make financial and moral decisions
about the kind of investments that they want their retirement to be
made of.
Ms. FOXX. Mr. Speaker, I yield 3 minutes to the gentleman from
Wisconsin (Mr. Grothman).
Mr. GROTHMAN. Mr. Speaker, I am glad this House joint resolution is
before us today. We continue to march toward a different sort of
government, and part of that different sort of government is the ESG
ideology being imposed or encouraged on America's corporations.
This is an ideological push on corporations, of which there is too
much already. Already, particularly big corporations have seminars
giving the leftwing view of the environment, the leftwing view of race,
the leftwing view of agenda.
This is to further push down on them and say: Here you are, Mr. Big
Corporation. We will give you a nice pat on the back if you use all of
your stockholders' money to promote a political agenda.
Obviously, that should be offensive to any freedom-loving person in
America.
Of course, in addition to that, studies from UCLA and New York
University show that the average corporation that engages in this ESG
stuff, their market goes up 6.3 percent instead of 8.9 percent, so the
shareholders have to pay a price.
To me, secondarily to the shareholders paying a price is this pound,
pound, pound that we already get from the universities, that we already
get from the popular culture and Hollywood, and now we have to get it
from big business, that the traditional, freedom-loving moral values of
America are something to be stepped aside, and we, big corporate
America, are going to ingratiate ourselves to the leftwing bureaucrats
in Washington by following the ESG standards.
I am very grateful that my good friend from North Carolina has let me
give this speech, and I sincerely hope everybody stands up for freedom.
The other side of the aisle would not like it if the people who
decide what ESG was, was written by Jim Jordan, okay? Maybe someday
that will happen. I don't know.
I liked it better when the big corporations stayed out of this thing,
but you want to put the sword over their throat and say: This is the
view of the world that you must adopt. You must have seminars and shove
it down the throats of your employees.
It will be a bad day for America if this thing doesn't pass.
Mr. SCOTT of Virginia. Mr. Speaker, I yield 2 minutes to the
gentleman from California (Mr. Vargas), a co-chair of the Congressional
Sustainable Investment Caucus.
Mr. VARGAS. Mr. Speaker, many times, things around here get topsy-
turvy. We have a group here involved in an anticapitalist crusade
against free-market principles, attempting to prevent financial
institutions from allocating capital in accordance with investors'
preferences and risk management priorities.
Under their proposed resolution, investment advisers can no longer
consider environmental, social, and governance factors that materially
impact a company's performance and bottom line. That means that your
hard-earned dollars cannot be adequately invested because you, the
American worker, are now exposed to greater risk.
It is interesting it doesn't say that you must invest in ESG. All
that the Biden administration says is that you can if you want to.
Whatever happened to capitalistic ideals that you should be able to
invest in what you want? You are trying to force people to say: No, you
cannot invest looking at a strategy of ESG.
That doesn't make any sense at all. It doesn't make any sense at all.
It is anticapitalistic. It is antimarket. We should not support this
resolution.
Ms. FOXX. Mr. Speaker, I yield 2 minutes to the gentleman from
Florida (Mr. Bean).
Mr. BEAN of Florida. Mr. Speaker, he is at it again. President
Biden's war on America's energy continues.
It started on day one with the cancellation of the Keystone XL
pipeline, and 2 years later, this administration is pushing
environmental, social, and governance, or ESG, to clog America's oil
and gas production.
The Department of Labor is seeking to weaponize American retirement
funds as part of President Biden's anti-fossil fuel agenda, all at the
expense of your retirement savings. ESG requirements not only
exacerbate high energy costs but also contribute to inflationary woes
and weaken our national security.
To be clear, ESG is more government control. ESG is less freedom for
Americans. ESG simply is a woke capitalist scam posing as responsible
corporate governance, which robs Americans of their hard-earned
retirement investments.
It is time to stand against the progressive mob, which only wants an
inch but seems to take a mile. Today, we are going to say no. We are
going to draw the line and say it ends now.
It is time to stand against the progressive mob and safeguard our
Nation's energy independence from the outstretched claws of ESG. A
correct vote on the bill today is ``yes,'' as a ``yes'' vote today says
no to ESG.
Mr. SCOTT of Virginia. Mr. Speaker, I yield 2 minutes to the
gentleman from Rhode Island (Mr. Magaziner).
Mr. MAGAZINER. Mr. Speaker, I rise to oppose this misguided
resolution, which will tie the hands of investors from doing their jobs
and will hurt the retirement savings of millions of hardworking
Americans.
The evidence is clear. Companies that adopt thoughtful policies to
manage their environmental, social, and governance risks outperform
those that don't. I will say that again. Companies that have thoughtful
policies to manage their environmental, social, and governance risks
outperform those that don't.
Don't believe me? Ask the shareholders of BP, whose stock fell more
than 50 percent after the Gulf oilspill, wiping out billions of dollars
of shareholder value; or Volkswagen, whose stock fell 45 percent after
they were caught cheating on emissions tests.
How about Norfolk Southern? They are in the news lately. Their stock
is tanking because of their inattention to managing the safety of their
operations.
The fact is that environmental, social, and governance issues are
financially material to company performance. Any investor who knows
what they are doing would be foolish to ignore those factors.
I know this because, as State treasurer and as an investor in the
private sector, I have spent the last 10 years studying corporate
performance. ESG issues matter.
Even if you don't agree with me, even if you think that environmental
and social issues are not material to performance, you ought to at
least believe
[[Page H936]]
that, in a free market, investors should have the power to make their
own decisions and to choose which factors they think are material or
not.
Let them use their professional judgment. Don't try to police what
investors are thinking when they are making decisions.
Why is it that the Republican majority, which claims to be the party
of limited government and free markets, is abandoning its free-market
principles and trying to dictate to investors what they have to think?
It makes no sense.
If anyone was wondering what this is about, it is not about free
markets. It is not, certainly, about protecting workers' retirement
security.
The SPEAKER pro tempore. The time of the gentleman has expired.
Mr. SCOTT of Virginia. Mr. Speaker, I yield an additional 1 minute to
the gentleman from Rhode Island.
Mr. MAGAZINER. I will just say again, let's be honest about what this
debate is really about. It is not about protecting worker retirement
savings. If we were serious about that, we would be saying that ESG is
material and should be considered.
It is not about free-market principles.
Could it be that it has to do with the oil and gas industry pouring
tens of millions of dollars into campaign accounts on the Republican
side? Could that be what is driving this?
Well, I think we see now where the priorities of our colleagues on
the Republican side lie--not with workers, not with free-market
principles, but with doing the bidding of the oil and gas industry.
Ms. FOXX. Mr. Speaker, I yield 2 minutes to the gentleman from
Kentucky (Mr. Barr).
Mr. BARR. Mr. Speaker, I don't know if my colleagues on the other
side of the aisle don't understand the existing law and what this
resolution does and what the Department of Labor's new rule is, or
whether they are just trying to confuse the listeners and watchers here
today because the truth is that this is not material for the vast
majority of Americans.
The studies show that most Americans don't even know what ESG is. To
the extent Americans do find it material, nothing in this resolution
prohibits an American from allocating their capital the way they want
to.
What this resolution will do is stop the Department of Labor from
coercing Americans into lower performing, higher fee, less diversified,
politicized funds. We must stop the politicization of allocation of
capital.
When my friend from Illinois says: Well, why are Republicans picking
losers? Really?
In 2022, the S&P 500 energy sector ended the year a whopping 59
percent higher than where it started. Amid a brutal bear market in
which the S&P 500 overall lost 20 percent, if you were invested in ESG
in 2022, you were a massive loser because you were divested from
energy.
Stop the politicization of capital. If you want to give Americans
freedom to choose what is material for them in investing, vote against
the Department of Labor rule, which would conceal what the Department
of Labor is doing, which is steering Americans into investments that
have political values that they disagree with.
Give Americans true transparency. Go back to the Department of Labor
rule under the Trump administration, which says the default should
always be consistent with ERISA, maximizing financial performance.
If you want an alternative, if you want to subordinate financial
returns to the environment, to climate change, to social justice, to
whatever, and you really don't care about your retirement security,
then you can choose that.
Let the American investor decide, and the default should always be
maximum investor returns.
Mr. SCOTT of Virginia. Mr. Speaker, I am prepared to close, and I
reserve the balance of my time.
Ms. FOXX. Mr. Speaker, I yield myself such time as I may consume.
It is a little ironic that our side of the aisle is being accused of
being anticapitalist and anti-free market. I would like to clarify for
the record the content of the Trump Department of Labor rule on
retirement plan ESG investing.
Under the Trump rule, if a fiduciary finds that an ESG factor is a
pecuniary or financial factor, it can be considered when investing and
exercising shareholder rights.
{time} 1445
Here are a few excerpts of the Trump rule, to set the record
straight:
``Nothing in the final rule is intended to or does prevent a
fiduciary from appropriately considering any material risk with respect
to an investment.''
Another quote: ``The ERISA fiduciary duty of prudence requires
portfolio-level attention to risk and return objectives reasonably
suited to the purpose of the account, diversification, cost
sensitivity, documentation, and ongoing monitoring.''
``The proposal was not intended to suggest that these principles
apply other than neutrally to all investment decisions. . . . ''
To suggest that the Trump rule barred a fiduciary from appropriately
considering any factor that may be material to an investment is
blatantly false. If anything, the Trump rule was neutral as to the
prudent decisions of fiduciaries.
Mr. Speaker, I reserve the balance of my time.
Mr. SCOTT of Virginia. Mr. Speaker, I yield myself the balance of my
time for closing.
Mr. Speaker, during this debate, we have heard a lot about ESG
investing. It is clear there is a difference of opinion on it, but
whether Members of Congress see things the same way is not the point.
What matters is that the Biden-Harris rule puts the decisionmaking
when it comes to considering ESG factors where it belongs, in the hands
of retirement plan fiduciaries who are best positioned and bound by
law, which has not changed, to act prudently on behalf of plan
participants. That is where the decisionmaking should stay.
They, not Members of Congress, know what is in the best interests of
their plan participants, and they are bound by their fiduciary
responsibilities to do the right thing.
Now, when supporters say that a fiduciary should not consider
nonpecuniary factors, they ignore the fact that ESG factors can, in
fact, be pecuniary, because often ESG factors, such as sea level rise,
can have a profound effect on the value of the investment. Those who
recognize this should be able to make reasonable investments based on
that knowledge.
Mr. Speaker, I include in the Record several letters from
organizations opposed to H.J. Res. 30. Eighty-three percent of
institutions that submitted comments were in favor of the underlying
rule. These organizations, who are opposed to H.J. Res. 30, include the
AFL-CIO, Americans for Financial Reform, Public Citizen, SEIU,
Environmental Defense Fund, League of Conservation Voters, Sierra Club,
Natural Resources Defense Council, Union of Concerned Scientists, and
others.
AFL-CIO,
Legislative Alert,
February 16, 2023.
Dear Representative: On behalf of the AFL-CIO, we urge you
to oppose the Congressional Review Act joint resolution that
has been introduced by Sen. Mike Braun and Rep. Andy Barr to
disapprove of the Department of Labor's recently adopted rule
``Prudence and Loyalty in Selecting Plan Investments and
Exercising Shareholder Rights'' (SJ. Res. 8, HJ. Res. 30).
The Department of Labor's rule clarifies that private
sector retirement plan fiduciaries may consider
environmental, social and governance (``ESG'') factors when
making plan investments or voting proxies. The rule does not
require that retirement plan fiduciaries consider ESG
factors, it simply acknowledges the fact that ESG factors may
be relevant to investment returns.
Indeed, the consideration of ESG factors helps protect the
hard-earned retirement savings of working people. ESG risks
are particularly relevant for long-term investors, such as
retirement plans, who are investing over the expected
lifespans of their participants and beneficiaries. For this
reason, ignoring ESG risks to an investment portfolio may be
financially imprudent.
Contrary to what some would have you believe, investment
professionals' consideration of ESG factors is not limited to
environmental risks, such as climate change. Social issues
such as respect for workers' rights and governance issues
such as having responsible executive compensation can also
impact sustainable investment returns.
The rule affirms that proxy votes should be cast in the
best interests of plan participants and beneficiaries,
thereby giving workers' retirement savings a voice in
corporate decision making. The rule also ensures that the
default investment for defined contribution
[[Page H937]]
plans is the best option available regardless of whether the
investment considers ESG factors.
Finally, the rule clarifies when retirement plan
fiduciaries may consider benefits other than investment
returns. These benefits can include the creation of good
jobs, affordable housing, and economic growth for local
communities. Such benefits may only be considered as
tiebreakers between competing investments that equally serve
the financial interests of the plan.
This rule makes clear that any consideration of ESG factors
must be consistent with the fiduciary duties of loyalty and
care. Retirement plan fiduciaries cannot sacrifice risk-
adjusted investment returns under any circumstances. The rule
appropriately holds the consideration of ESG factors to the
exact same documentation requirements as any other fiduciary
decision.
The decision of whether to consider ESG factors should be
left to investment professionals, not politicians. Trillions
of dollars in assets under management already take ESG
factors into consideration when making investment decisions.
Congress should not interfere in the free market by seeking
to prohibit the consideration of ESG factors.
For these reasons, we strongly urge you to oppose
disapproval of the Department of Labor's rule ``Prudence and
Loyalty in Selecting Plan Investments and Exercising
Shareholder Rights.'' Congress should not play politics with
our pension plans by repealing this commonsense rule.
Sincerely,
William Samuel,
Director, Government Affairs.
____
Americans for Financial Reform,
February 24, 2023.
Hon. Chuck Schumer,
Senate Majority Leader,
U.S. Senate, Washington, DC.
Hon. Kevin McCarthy,
Speaker of the House,
House of Representatives, Washington, DC.
Chairman Bernie Sanders,
HELP Committee,
U.S. Senate, Washington, DC.
Chairwoman Virginia Foxx,
Education and the Workforce Committee,
House of Representatives, Washington, DC.
Hon. Mitch McConnell,
Senate Minority Leader,
U.S. Senate, Washington, DC.
Hon. Hakeem Jeffries,
House Minority Leader,
House of Representatives, Washington, DC.
Ranking Member Bill Cassidy,
HELP Committee,
U.S. Senate, Washington, DC.
Ranking Member Bobby Scott,
Education and Workforce Committee,
House of Representatives, Washington, DC.
Dear Senate Majority Leader Schumer, Senate Minority Leader
McConnell, House Speaker McCarthy, House Minority Leader
Jeffries, HELP Committee Chairman Sanders, HELP Ranking
Member Cassidy, House Education and the Workforce Committee
Chairwoman Foxx, and House Education and the Workforce
Committee Ranking Member Scott: The undersigned organizations
urge you to defend the Department of Labor's important
fiduciary rule that safeguards the savings of millions of
workers who participate in private-sector employee benefit
plans. The rule, titled ``Prudence and Loyalty in Selecting
Plan Investments and Exercising Shareholder Rights,'' has
four main components: 1) removes costly and impractical
record-keeping burdens on fiduciaries to ensure those who
manage workers' money have the flexibility needed to consider
all financially relevant risks and opportunities; 2) allows
consideration of collateral benefits such as creating union
jobs only if different investment options equally serve the
financial interests of the plan over the appropriate time
horizon; 3) increases workers' investment choices within the
confines of ERISA's stringent protections; and 4) removes
costly and unnecessary barriers to the exercise of
shareholder rights.
A vote in favor of a Congressional Review Act (CRA)
resolution to nullify the rule is an affirmative vote for
unworkable, burdensome Trump-era rules. Trump-era rules
erected ``needless barriers'' and had a ``chilling effect . .
. on considering environmental, social and governance factors
in investments'' that are financially relevant. The Trump
rules also put the thumb on the scale against workers'
ability to exercise their shareholder rights, diluting
workers' shareholder voice. Additionally, three lawyers, all
experts in ERISA, recently published a paper that included an
in-depth analysis of why the distinction between
``pecuniary'' and ``non-pecuniary,'' first introduced in the
Trump-era rules and ``roundly criticized during the
rulemaking comment process,'' is self-contradictory and
unworkable.
The Biden DOL rule repeatedly affirms the core ERISA tenet:
that fiduciaries are not allowed to sacrifice returns in the
pursuit of collateral benefits. The Biden rule returns power
to fiduciaries to make the best decisions regarding relevant
risks and returns in their participants' best interests, in
contrast to the Trump-era rules, which sought to inject
politics into fiduciary decision-making.
The CRA resolution is part of a larger, failing effort to
imbue ``ESG'' with false meaning, vilify it, and legislate
against it. This effort is backed by powerful corporate
interests--including fossil fuel companies looking to
postpone the inevitable decarbonization of the economy--that
are attempting to roll back progress that has been made on
climate change, workers' rights, racial equity, and other ESG
issues with clear financial implications. They are doing so
by pushing legislation and other policies that hurt both
workers' hard-fought pensions and taxpayers.
This effort is unpopular--with 63 percent of voters
agreeing the government should not set limits on corporate
ESG investments, including 70 percent of Republicans and 57
percent of Democrats--and has suffered numerous, recent
failures including: 1) Indiana's budget office finding that a
bill forcing pension funds to divest from asset managers that
consider ESG factors would cost $6.7 billion over the next
decade in sub-market returns, force retirees to increase
their contributions, and impose an additional $550,000
administrative costs a year; 2) Arizona Attorney General Kris
Mayes announcing Arizona will no longer participate in
investigations into banks and other financial institutions
over ESG investing practices, stating that she believes ``it
is not the place of government to tell corporations and their
investors that they cannot invest in sustainable technologies
and practices or improve their governance processes; 3) a
study finding that a 2021 Texas investment blacklist would
cost municipalities an additional $303 million to $532
million in bond interest; and 4) North Dakota voting down,
90-3, a Texas-style bill that would have required the state
treasurer to prepare a blacklist of financial firms that have
committed to reducing carbon emissions.
For all the reasons stated above, we urge you to protect
workers' pensions from anti-ESG attacks and vote no on the
CRA resolution. For further discussion, please contact
Natalia Renta.
Sincerely,
Americans for Financial Reform; Public Citizen;
1worker1vote; 350Hawaii; 7 Directions of Service; Abacus
Wealth Partners; Adrian Dominican Sisters, Portfolio Advisory
Board; American Family Voices; American Sustainable Business
Network; As You Sow; B Lab U.S. & Canada; California
Reinvestment Coalition; Change Finance; Change the Chamber;
Climate Finance Action; Climate Hawks Vote.
Community Development Venture Capital Alliance;
Congregation of St. Joseph; Connecticut Citizen Action Group
(CCAG); Consumer Federation of America; Daughters of Charity,
Province of St. Louise; Demand Progress; Divest Oregon; Earth
Action, Inc.; Earthjustice; Florida for Good; Fresh Water
Accountability Project; Future Nexus; Green America;
Harrington Investments, Inc.; Honor the Earth; Intentional
Endowments Network.
Interfaith Center on Corporate Responsibility (ICCR);
Kingdom Living Temple Church; League of Conservation Voters;
Mercy Investment Services, Inc.; Montana Environmental
Information Center; National Community Investment Fund;
National Employment Law Project; Natural Investments LLC; New
Alpha Community Development Corporation; NYU Stem Center for
Business and Human Rights; Oil & Gas Action Network; Omidyar
Network; Opportunity Finance Network; Oxfam America; Pensions
& Investment Research Consultants, Ltd.; Physicians for
Social Responsibility--Pennsylvania.
Predistribution Initiative; Rabbis and Cantors Retirement
Plan; Revolving Door Project; Rights CoLab; Sciencecorps;
Seventh Generation Interfaith Coalition for Responsible
Investment; Sierra Club; Shareholder Rights Group; SOC
Investment Group; Socially Responsible Investment Coalition;
The B Team; Toniic Institute; Trillium Asset Management;
Union of Concerned Scientists; U.S. Impact Investing
Alliance; Whitney M. Slater Foundation; Zero Hour.
____
SEIU,
Washington, DC, February 21, 2023.
Dear Senator: On behalf of the two million members of the
Service Employees International Union (SEIU), I write to
oppose S.J. Res. 8 and H.J. Res. 30, the Congressional Review
Act joint resolution(s) that have been introduced by Senator
Mike Braun and Rep. Andy Barr to disapprove of the Department
of Labor's recently adopted rule entitled ``Prudence and
Loyalty in Selecting Plan Investments and Exercising
Shareholder Rights.'' The rule clarifies that private sector
retirement plan fiduciaries may consider environmental,
social and governance (``ESG'') factors when making plan
investments or voting proxies. The rule does not require that
retirement plan fiduciaries consider ESG factors, it simply
acknowledges the fact that ESG factors may be relevant to
investment returns. Further retirement plan fiduciaries
cannot sacrifice risk-adjusted investment returns under any
circumstances. The rule appropriately holds the consideration
of ESG factors to the exact same documentation requirements
as any other fiduciary decision.
The consideration of ESG factors helps protect the hard-
earned retirement savings of working people. ESG risks are
particularly relevant for long-term investors, such as
retirement plans, who are investing over the expected
lifespans of their participants and beneficiaries. Ignoring
ESG risks, or pretending that they don't exist, may be
financially imprudent to an investment portfolio and could
end up with long term consequences. Contrary to outlandish
claims by those who oppose the rule, investment
professionals' consideration of ESG factors that could impact
sustainable investment returns is not limited to
environmental risks, such
[[Page H938]]
as climate change, but could also include other societal
issues such as respect for workers' rights, or even
governance issues such as having responsible executive
compensation.
The rule also affirms that proxy votes should be cast in
the best interests of plan participants and beneficiaries,
therefore giving workers' retirement savings a voice in
corporate decision making. The rule also ensures that the
default investment for defined contribution plans is the best
option available regardless of whether the investment
considers ESG factors. Finally, the rule clarifies when
retirement plan fiduciaries may consider benefits other than
investment returns. These benefits can include the creation
of good jobs, affordable housing, and economic growth for
local communities. These benefits may only be considered as
tiebreakers between competing investments that equally serve
the financial interests of the plan.
The rule makes clear that any consideration of ESG factors
must be consistent with the fiduciary duties of loyalty and
care. The decision of whether to consider ESG factors should
be left to investment professionals, and Congress should not
interfere by prohibiting the consideration of ESG factors.
For these reasons, we urge you to oppose and vote against
S.J. Res. 8 and H.J. Res. 30. We will add any votes on this
legislation to our legislative scorecard for the 118th
Congress.
Sincerely,
John Gray,
Legislative Director.
____
House of Representatives,
Washington, DC, February 27, 2023.
Dear Representatives: Americans work hard for their
retirement savings and need to be able to trust that their
401(k) and pension plans can be managed to prudently account
for all financial risks. That is why the Department of Labor
(DOL) issued a rule in November 2022 to ensure that
retirement plan managers can consider all factors relevant to
investment risk and return in their decision-making,
including financial risks due to climate change. H.J. Res.
30, the Congressional Review Act (CRA) resolution to block
the DOL rule, is a threat to Americans' retirement savings.
Our organizations urge all Representatives to oppose H.J.
Res. 30.
Congress passed the Employee Retirement Income Security Act
of 1974 (ERISA) to protect the hard earned retirement savings
upon which workers and their families rely. For decades,
DOL's ERISA rules set forth retirement plan managers' core
duty to prudently consider all relevant factors, while
remaining neutral on investment types. In 2020, the Trump
Administration deviated from this longstanding approach by
issuing ERISA rules that discouraged consideration of
environmental, social, and governance (ESG) factors--even
when these factors affect investment risk and return.
The 2022 DOL rule under ERISA returns to neutrality, in
which plan managers can consider all relevant factors to
assess investment risk. The rule does not mandate, prohibit,
encourage, or discourage any particular type of investment.
The rule is clear that retirement plan managers must base
their decisions on financial risk-return factors. Those
financial factors may include the financial risks and
economic impacts of changing climate and other environmental,
social and governance factors.
The DOL rule is supported by diverse groups including the
AFL-CIO, investment managers like Vanguard and TIAA, and the
American Retirement Association. President Bush's Assistant
Secretary of Labor, Bradford Campbell stated that ``the new
rule is more consistent with the regulatory history than the
2020 rule was.'' Public comments submitted demonstrate
overwhelming and broad support for the Department of Labor
rule.
The DOL rule restores plan managers' freedom to consider
all financially relevant factors, including financial risks
due to climate change, so they can offer prudent investment
choices to workers. American workers deserve no less.
Congress: protect Americans' retirement savings by voting
NO on this CRA resolution H.J. Res. 30.
Sincerely,
Environmental Defense Fund, League of Conservation Voters,
Americans for Financial Reform, California Reinvestment
Coalition, Center for American Progress, Ceres Accelerator
for Sustainable Capital Markets, Change the Chamber, Clean
Water Action, Climate Action Campaign, Climate Hawks Vote,
Earthjustice, Evergreen Action, Natural Resources Defense
Council, Public Citizen, Sierra Club, Union of Concerned
Scientists, WWF.
Mr. SCOTT of Virginia. Mr. Speaker, these organizations have diverse
missions, but they all agree that H.J. Res. 30 should be rejected.
Mr. Speaker, I include in the Record two letters from financial
services firms who submitted supportive comments on the underlying
rule. These firms are BNY Melon Investment Management and Lazard Asset
Management, who have trillions of dollars in assets under management.
BNY Mellon,
December 13, 2021.
Office of Regulations and Interpretations,
Employee Benefits Security Administration,
U.S. Department of Labor, Washington, DC.
On behalf of BNY Mellon Investment Management, thank you
for the opportunity to submit comments on the notice of
proposed rulemaking entitled ``Prudence and Loyalty in
Selecting Plan Investments and Exercising Shareholder
Rights'' (the ``Proposal'') published by the U.S. Department
of Labor (the ``Department''). We strongly support the
Department's efforts to clarify the regulatory treatment of
environmental, social, and governance (``ESG'') factors under
Title I of the Employee Retirement Income Security Act of
1974, as amended (``ERISA'') following the publication of
``Financial Factors in Selecting Plan Investments'' and
``Fiduciary Duties Regarding Proxy Voting and Shareholder
Rights'' (together, the ``Current Rules''). To continue the
Department's efforts to add clarity to the use of ESG factors
by fiduciaries we suggest the Department add clarification in
the rule or preamble that a fiduciary can use a screen to
consider ESG factors based on the fiduciary's determination
that a particular ESG factor will impact investment value
consistent with Section 2550.404a-1(c)(2) of the Proposal.
BNY Mellon Investment Management is a division of BNY
Mellon, one of the world's largest financial services groups.
With a presence in 35 countries, BNY Mellon looks to connect
investors with opportunities across every major asset class.
BNY Mellon Investment Management encompasses BNY Mellon's
affiliated investment firms and global distribution
companies, constituting over $2.3 trillion in AUM (as of
September 30, 2021).
BNY Mellon Investment Management follows a multi-boutique
investment management model that weds the specialist
expertise from its investment firms offering solutions across
every major asset class, backed by the strength, stewardship,
and global presence of BNY Mellon. Each investment firm has
its own unique culture, investment philosophy, and
proprietary investment processes, and provides a global
perspective. Our seven majority owned investment firms, are
as follows (all AUM figures as of September 30, 2021):
Alcentra ($41.0B), ARX ($7.0B), Dreyfus Cash Investment
Strategies ($342.7B), Insight Investment ($1,100.0B), Mellon
($448.6B), Newton Investment Management ($139.1B), and Walter
Scott ($99.9B).
At BNY Mellon Investment Management our Responsible
Investment (RI) approach varies across our investment firms,
but the effective stewardship of our clients' assets is
common to all and core to our own purpose. Many products or
solutions offered by BNY Mellon Investment Management examine
ESG factors in their investment processes and decision-making
to better manage risk and generate sustainable long-term
returns. Six of our investment firms--Alcentra, ARX, Insight,
Mellon, Newton, and Walter Scott--are signatories of the
Principles for Responsible Investment (``PRI'').
As we have noted in a previous comment letter, over the
past decades, fiduciaries and investment managers have come
to appreciate the materiality that ESG factors can have on
investment value. We welcome the Department's clarifications
to the Current Rules regarding the use of ESG factors and the
exercise of shareholder rights. The acknowledgement by the
Department that climate risks and other ESG factors can be
and often are material to investment risk and returns will
better allow fiduciaries to mitigate risk and enhance returns
based on evaluating ESG factors.
Within the last decade, a deep body of research has been
produced that demonstrates the material influence of ESG
factors on the profitability of an enterprise and the
performance of its securities. For example, weak control of
environmental activities such as pollution, over-consumption
of raw materials or lack of recycling of waste materials
readily leads to volatile or lower achieved margins or
financial penalties that reduce investor returns. Similarly
with social issues: high staff turnover, high strike rates or
absenteeism or death or injury rates have all been linked to
lower productivity and poor quality control. Regarding
governance, we know from years of empirical observation that
poorly managed issuers can seriously damage investor returns.
To ignore the entire category of information and analysis
that comprise ESG factors, therefore, could be deemed an
abrogation of a fiduciary's responsibility to consider all
material information when assessing the risk and return of
any investment opportunity.
The Proposal appropriately balances the materiality that
ESG factors can have on investment value with the
Department's longstanding principles that a fiduciary's
duties of prudence and loyalty require the fiduciary to
consider factors that are material to investment value. In
particular, a fiduciary should not subordinate the interests
of plan participants and beneficiaries to other objectives,
nor sacrifice investment return or take on additional
investment risk to promote goals unrelated to the plan and
its participants and beneficiaries. We specifically believe
that the proposed removal of the definition of ``pecuniary
factors'' and the revision to the Current Rules providing
that a fiduciary's evaluation of an investment or investment
course of action should be based on factors that ``are
material to investment value'' both clarifies the rule and
ensures that the rule reflects the analysis performed by
fiduciaries when making investment decisions.
[[Page H939]]
We also support the removal of the special rule prohibiting
certain investment alternatives from being considered
qualified default investment alternatives (QDIA) because the
investment references ESG factors. The QDIA restrictions in
the Current Rules add uncertainty and would be difficult to
apply. We agree with the Department that there is not a
reason to prohibit fiduciaries from prudently selecting a
fund that meets the QDIA requirements and includes the
consideration of ESG factors.
We support the Department's efforts to reduce the
uncertainty in the market caused by the Current Rules and we
suggest additional clarification regarding the use of
screens. We believe this clarification could further reduce
uncertainty that might otherwise prevent fiduciaries from
considering ESG factors which are expected to enhance
investment value and performance or improve investment
portfolio resilience against the potential financial risks.
As noted above, we support the removal of ``pecuniary
factors'' and that a fiduciary's evaluation of an investment
or investment course of action should be based on factors
that ``are material to investment value''. We think that the
Department could add additional clarity to the rule or
preamble by clarifying that the proposed rule does not per se
prohibit a fiduciary from using a screen on investments based
in whole or in part on ESG factors.
A common method used by investment managers to incorporate
ESG factors into the assessment of investment risks and
returns is the use of screens. As described in the Proposal,
``negative screening refers to the exclusion of certain
sectors, companies, or practices from a fund or portfolio
based on ESG criteria.'' The Proposal's discussion of the
benefits that can occur from the use of ESG factors in the
assessment of investment risks and returns relies on sources
that studied the impact of investment managers using screens
based on ESG factors. However, the Current Rules and some
past guidance regarding the use of ESG factors could be read
to preclude the use of screens based on ESG factors.
We suggest that the Department clarify in the final rule or
its preamble that the investment prudence duties and the
investment loyalty duties under Sections 2550.404a-1(b) and
2550.404a-1(c), respectively, do not per se prohibit the use
of screens. For example, it should be permissible for a plan
fiduciary to select investment managers and funds that use
screens to the extent that doing so would otherwise be
consistent with its duties. It should similarly be
permissible for any such investment manager to select an
``investment course of action'' that uses a screen to the
extent that the resulting investment strategy would otherwise
be consistent with its duties. Such a clarification would
provide certainty to fiduciaries seeking to use ESG factors
in the assessment of investment risks and returns in
accordance with their prudence and loyalty duties. It would
further ensure that plan participants realize the full
benefits of fiduciaries using ESG factors as described in the
Proposal.
We strongly support the Department's efforts to bring
clarity to the use of ESG factors and the exercise of
shareholder rights by plan fiduciaries. We believe the
Proposal and the changes suggested here will promote
retirement income security and further retirement savings by
allowing fiduciaries to better manage risks and improve
investment returns.
Sincerely,
Hanneke Smits,
Chief Executive Officer,
BNY Mellon Investment Management.
____
Lazard Asset Management,
December 12, 2021.
Office of Regulations and Interpretations,
Employee Benefits Security Administration,
U.S. Department of Labor, Washington, DC.
Dear Madam or Sir: Lazard Asset Management LLC (``LAM'')
submits the following comments regarding the above-referenced
proposal to amend the Investment Duties regulation under
Title I of the Employee Retirement Income Security Act of
1974, as amended (``ERISA''). See Prudence and Loyalty in
Selecting Plan Investments and Exercising Shareholder Rights,
29 CFR Part 2550, RIN 1210-AC03 (October 14, 2021), 86 Fed.
Reg. 57272 (the ``Proposed Rule'').
LAM is pleased that the Department recognizes that climate
change and other ESG factors are often material to the
assessment of investment risks and returns. We agree with the
Department that the changes proposed not only would clarify
the duties of plan fiduciaries when selecting investment
options, but also would help individuals build retirement
income security and retirement savings. In particular, we
believe that the Proposed Rule, if adopted, will provide
plans with the freedom to leverage the advances that active
asset managers have contributed to ESG analysis and investing
in recent years.
LAM is an investment adviser registered with the Securities
and Exchange Commission, with more than $239.8 billion of
assets under management as of September 30, 2021. We manage
assets on a discretionary basis for a large number of global
clients, including a variety of U.S. defined benefit plans,
defined contribution plans, individual retirement accounts,
and variable annuity portfolios.
LAM's investment decisions are based on proprietary
fundamental and quantitative research techniques that our
professionals have developed over decades. Our firm seeks to
manage client portfolios in a way that delivers investment
performance, maximizes long-term shareholder value, and
limits unwanted risks--including the risks presented by ESG
factors.
The Proposed Rule would allow plan fiduciaries to consider
a wider variety of factors when evaluating plan investment
options under Section 404(a) of ERISA, which sets forth the
standards of prudence that an ERISA fiduciary must satisfy
when selecting investments for a qualified plan. The Proposed
Rule is in response to the rule the Department adopted in
2020, Financial Factors in Selecting Plan Investments, 85 FR
72846 (Nov. 13, 2020) (the ``2020 Rule''), which is
interpreted generally to require plan fiduciaries to select
investments and investment courses of action based solely on
the consideration of ``pecuniary factors.'' The 2020 Rule
also contains a prohibition against adding or retaining any
investment fund, product, or model portfolio as a qualified
default investment alternative (QDIA) if the fund, product,
or model portfolio reflects non-pecuniary objectives in its
investment objectives or principal strategies.
LAM agrees with the Department's overall assessment of the
2020 Rule expressed in Section 3 of the preamble of the
Proposed Rule--specifically, that the 2020 Rule (1) does not
properly reflect the scope of fiduciaries' duties under ERISA
to act prudently and solely in the interest of participants
and beneficiaries when evaluating investments and (2) creates
uncertainty surrounding whether a fiduciary under ERISA may
consider any ESG and other important factors in making
investment decisions. A number of Department bulletins and
pronouncements predating the 2020 Rule effectively guided
plan fiduciaries that they could consider adding ESG
investment options to their plans pursuant to Section 404(a).
See e.g., Interpretive Bulletin 2008-01, Interpretative
Bulletin Relating to Investing in Economically Targeted
Investments, 73 FR 61734 (Oct. 17, 2008); Interpretive
Bulletin 2015-01, Interpretive Bulletin Relating to the
Fiduciary Standard Under ERISA in Considering Economically
Targeted Investments, 80 Fed. Reg. 65135 (Oct. 26, 2015); and
Field Assistance Bulletin No. 2018-01 (April 23, 2018). The
2020 Rule changed the guidance and standards set forth in
those precedents.
The Proposed Rule would add language in paragraph
(b)(2)(ii)(C) of the current regulation to recognize
explicitly that ``consideration of the projected return of
the portfolio relative to the funding objectives of the plan
may often require an evaluation of the economic effects of
climate change and other ESG factors on the particular
investment or investment course of action.''
This would allow plan fiduciaries to evaluate factors that
many other investors already consider material. An analysis
of over 16,000 global firms over the period of 2016 to 2020
conducted by the Lazard Climate Center found investors are
actively pricing in risk from company emissions profiles. The
study found that with all else being equal, changes in
emissions profiles can have an impact on a company's market
valuation. For example, a hypothetical 10 percent decrease in
carbon dioxide emissions is associated with a 0.44 percent
price-to-earnings appreciation. In addition, the Swiss Re
Institute's April 2021 report The Economics of Climate
Change: No Action Not an Option, states that ``[t]he
transition towards a low carbon economy . . . has
repercussions for asset valuations. It is clear that climate
transition risks can have a substantial impact on equity and
credit valuations.'' Their analysis concludes that ``under
the current trajectory, global GDP could be 11-14 percent
less by mid-century than in a world without climate change.''
LAM's research recognizes that there will be economic
winners and losers from the low carbon transition, and that
economically material factors should not be ignored in
investment analysis simply because they are of an
environmental, social, or governance nature. The Proposed
Rule properly grants fiduciaries the express permission to
consider material ESG factors in their investment
analysis, which we believe should result in promoting
retirement income security and more secure retirement
savings.
The Proposed Rule ``confirms that a fiduciary may consider
any factor material to the risk-return analysis, including
climate change and other ESG factors'' (emphasis added). It
goes on to list numerous nonexclusive examples:
(i) Climate change-related factors, such as a corporation's
exposure to the real and potential economic effects of
climate change, including its exposure to the physical and
transitional risks of climate change and the positive or
negative effect of Government regulations and policies to
mitigate climate change;
(ii) governance factors, such as those involving board
composition, executive compensation, and transparency and
accountability in corporate decision-making, as well as a
corporation's avoidance of criminal liability and compliance
with labor, employment, environmental, tax, and other
applicable laws and regulations; and
(iii) workforce practices, including the corporation's
progress on workforce diversity, inclusion, and other drivers
of employee hiring, promotion, and retention; its investment
in training to develop its workforce's skill; equal
employment opportunity; and labor relations.
[[Page H940]]
We believe that the examples given in the Proposed Rule,
while necessarily incomplete, do serve the purpose of
providing adequate guidance to plan fiduciaries. We also
believe the Department's examples focus fiduciaries on
economically material considerations.
At LAM, we have embedded ESG insights into our relevant
investment research and portfolio construction functions. We
have developed a proprietary ESG integration framework using
(among other things) materiality mapping, which is being
implemented across relevant investment platforms. As an
active asset manager that has incorporated ESG considerations
into its proprietary research, LAM is able to regularly
provide our clients with examples of how such considerations
have positively influenced investment outcomes. We have made
these investments into our platform because we believe that
investors--including plan fiduciaries--need to understand how
ESG factors impact the financial productivity, operational
risks, and valuations of the companies whose shares and bonds
are in their portfolios.
Paragraph (c)(3) of the Proposed Rule amends the ``tie
breaker'' standard in the 2020 Rule to allow fiduciaries to
use broader discretion when comparing investment options.
Under the proposal, a fiduciary evaluating two suitable
investment options may select the ESG option over the non-ESG
option where both would ``equally serve the financial
interests of the plan over the appropriate time horizon,''
instead of limiting the use of the ``tie-breaker'' standard
to situations in which both are ``economically
indistinguishable.'' LAM agrees with this more comprehensive
approach as it recognizes that fiduciaries should have the
freedom to choose an investment for the purposes of
diversification or to hedge against broad categories of risk,
both of which can lead to better financial performance for a
portfolio.
The Proposed Rule rescinds paragraph (d)(2)(ii) of the
current regulation which prevents an investment option to
serve as a qualified default investment alternative (QDIA) if
it includes the use of non-pecuniary factors in its
investment objectives even if the option is prudent from a
risk and return perspective. LAM believes the 2020 Rule in
this regard is contrary to goals of ERISA as it could
potentially exclude financially prudent investment options on
the simple basis that they consider economically material ESG
factors. As previously stated, LAM believes that
consideration of economically material factors should not be
prohibited on the sole basis that they are of an
environmental, social, or governance nature.
We believe that plan fiduciaries should include assessments
of material ESG issues when evaluating retirement plan
investments. The risks identified by an ESG-integrated
assessment are often ultimately detrimental, and the
opportunities identified can be quite additive, to the
financial performance and value of assets in an investment
portfolio. Importantly, the Proposed Rule greatly reduces the
current uncertainty surrounding a fiduciary's consideration
of material ESG factors. It restores trust in fiduciaries by
allowing them to use their professional judgement to evaluate
all material factors when selecting investment options for
plan participants and beneficiaries.
In light of the foregoing, we recommend that the Department
adopt and implement the Proposed Rule as written. We would be
happy to provide the Department with additional information
concerning our comments. Any requests should please be
directed to our General Counsel, Mark Anderson.
Respectfully submitted,
Nikita Singhal,
Co-Head Sustainable Investment & ESG.
Jennifer Anderson,
Co-Head Sustainable Investment & ESG.
Mr. SCOTT of Virginia. Mr. Speaker, this is just a small sample of
the financial industry's support for the underlying rule. We should not
overturn the rule with this resolution.
Mr. Speaker, for these reasons, I oppose H.J. Res. 30, I encourage
all Members to do the same, and I yield back the balance of my time.
Ms. FOXX. Mr. Speaker, I urge my colleagues to support H.J. Res. 30,
to stop the Biden administration from decimating the retirement savings
of millions of Americans.
ESG funds will not give retirees the secure future they need.
According to a former BlackRock senior executive, ESG funds
underperformed the broader market compared to non-ESG funds over the
last 5 years.
Retirees are already worried about the rising costs of goods and
services, not whether a company is using plastic straws in its
cafeteria.
Americans deserve to have a secure retirement. This means retirement
plans need to focus solely on workers' financial interests. That is why
I urge my colleagues to support this resolution.
Mr. Speaker, I yield back the balance of my time.
Ms. JACKSON LEE. Mr. Speaker, I rise in opposition to H.J. Res. 30,
and I encourage my colleagues to vote against this measure.
H.J. Res. 30 would nullify a Department of Labor rule concerning the
fiduciary duties with respect to employee benefit plans.
Under the rule issued on December 1, 2022, plan fiduciaries may
consider climate change and other environmental, social, and governance
(ESG) factors when they make investment decisions and when they
exercise shareholder rights, including voting on shareholder
resolutions and board nominations.
One of my greatest joys as a Member of Congress is the opportunity to
work on behalf of the people of the United States of America, to ensure
that every voice is heard, and every right is upheld.
In addition, the future of the American People relies heavily on
thoughtful investments in key areas that include ESG as this is the
backbone of our environment and the state of livelihoods of our growing
communities.
Under the Employee Retirement Income Security Act of 1974,
fiduciaries of private pension plans must act in the interest of plan
participants, including when making investment decisions.
If participants want to invest their employee benefits into
environmental, social, and governance factors, the government should
not be against it just because it goes against a particular party's
interests.
The rule ``Financial Factors in Selecting Plan Investments,'' issued
on November 13, 2020, required fiduciaries to make investment decisions
based solely on ``pecuniary factors.''
That rule included a ``tiebreaker'' standard, under which fiduciaries
could consider other benefits when ``alternative investment options are
economically indistinguishable.''
The 2022 rule clarified how plan fiduciaries may consider climate
change and other environmental, social, or governance (commonly
referred to as ESG) factors when making investment decisions.
Under the new regulation, fiduciaries may consider ``the economic
effects of climate change and other environmental, social, or
governance factors,'' but investment decisions ``may not subordinate
the interests of the participants and beneficiaries in their retirement
income or financial benefits under the plan to other objectives and may
not sacrifice investment return or take on additional investment
risk.''
This bill establishes the disapproval of the final rule ``Prudence
and Loyalty in Selecting Plan Investments and Exercising Shareholder
Rights.''
The world is seeing more climate related disasters than ever before.
These disasters are greatly impacting the way that the public
prepares their finances for potential strains.
In 2017 Hurricane Harvey ravaged many communities in my home state
and devastated the livelihoods of many working-class Americans.
Many of my constituents experienced economic hardships that are still
being felt today.
With an increase in natural disasters, we must protect the American
public and provide them with opportunities to invest in their needs.
This point serves to acknowledge the importance we must put into our
people and communities as things change and we continue to progress
into the future.
Strategic and thoughtful investments in our people, environments, and
livelihoods should be of utmost importance.
In essence, our future is dependent on how we invest in the now.
The American people want a future, and we can provide that by
thoughtfully planning through our strategic investments in the American
people of all backgrounds and the diverse environments in which we aim
to thrive in for decades to come.
The SPEAKER pro tempore (Mr. DesJarlais). All time for debate has
expired.
Pursuant to the House Resolution 166, the previous question is
ordered.
The question is on the engrossment and third reading of the joint
resolution.
The joint resolution was ordered to be engrossed and read a third
time, and was read the third time.
The SPEAKER pro tempore. The question is on passage of the joint
resolution.
The question was taken; and the Speaker pro tempore announced that
the ayes appeared to have it.
Mr. SCOTT of Virginia. Mr. Speaker, on that I demand the yeas and
nays.
The yeas and nays were ordered.
The SPEAKER pro tempore. Pursuant to clause 8 of rule XX, further
proceedings on this question will be postponed.
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