Biden's ESG Rule, Termed 'Woke' By Republicans, Overturned By US Senate Bill; Biden To Veto

Zinger Key Points
  • ESG investing allows for social and environmental considerations to be weighed.
  • Republicans struck down the rule on Wednesday, which Biden is expected to veto.

The U.S. Senate on Wednesday voted to adopt a resolution to overturn a Department of Labor rule which allows retirement plans to consider environmental, social and governance (ESG) investing when making investment decisions, according to multiple news outlets.

What Happened: Republicans have been heavily critical of the President Joe Biden administration rule, saying it is part of a "woke" political agenda, although the rule merely gave retirement plans the ability to weigh ESG when making investment decisions as opposed to mandating the practice.

Biden is expected to veto the bill, which will mark the first of such actions taken by the president during his term, according to Bloomberg.

“@SenSchumer is right: Republicans’ hypocritical resolution to nullify @USDOL’s ESG rule ties investors’ hands & would force their extremist views on investors. Thankfully, @POTUS will veto to protect retirees’ freedom to invest savings where they want,” Sen. Elizabeth Warren ((D-Mass.) wrote on Twitter Thursday.

Republicans, led by Rep. Andy Barr (R-KY) who introduced the bill, voted 50-46 to end the ESG rule, aided by moderate Democrats Jon Tester of Montana and Joe Manchin of West Virginia, according to Bloomberg.

What Is ESG: ESG investing allows for social and environmental considerations to be weighed when creating or adjusting an investment portfolio, as opposed to only considering financial factors in investment decisions, according to Forbes.

When ESG investing, portfolio managers may choose to steer away from fossil fuel or weaponry and ammunition stocks and instead, move toward companies that are environmentally and socially responsible.

Republicans against the rule say ESG investing would allow fund managers to place priority on their own beliefs rather than looking out for the best financial returns for retirees.

The Department of Labor, in contrast, believes the environment and social factors should be taken into consideration to determine risk in order to protect long-term investments.

What's Going On With ESG ETFs: Many ESG ETFs, which focus on tracking stocks with positive environmental, social and governance impacts, declined in February after Republicans started to speak out against Biden’s rule, which came into effect on Jan. 30. If Biden follows through and vetoes Wednesday’s bill, those same ESG ETFs could see an upside.

Three ESG ETFs To Consider:

• iShares ESG Aware MSCI USA ETF ESGU was trading up about 0.84% on Thursday and is up 3.28% year-to-date. The fund's top three holdings are Apple, Microsoft and Amazon.

• Schwab U.S. Dividend Equity ETF SCHD was trading up about 0.47% on Thursday and is down about 1.26% year-to-date. The fund's top three holdings are Broadcom, Verizon and Cisco Systems.

• Goldman Sachs Future Real Estate and Infrastructure Equity ETF GREI was trading up 0.56% and is up 3.12% this year. The fund's top three holdings are Prologis, Transurban Group and National Grid.

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