New Department of Labor Rule Allows Retirement Money to Finance ESG Agenda

The U.S. Department of Labor building in Washington, D.C., on March 26, 2020. (Alex Edelman/AFP via Getty Images)

U.S. lawmakers are fighting back against a new Biden administration rule that allows retirement money to be invested according to environmental, social, and governance (ESG) criteria.

Every Republican senator, plus West Virginia Democrat Joe Manchin, signed on to a disapproval resolution recently in protest of a Department of Labor (DOL) directive that went into effect on Jan. 30. The resolution asserts that the Biden administration is putting the pensions of 152 million Americans at risk to support “climate and social justice.”

“President Biden is jeopardizing retirement savings for millions of Americans for a political agenda,” Sen. Mike Braun (R-Ind.), who introduced the resolution, stated. “In a time when Americans’ 401(k)s have already taken such a hit due to market downturns and record-high inflation, the last thing we should do is encourage fiduciaries to make decisions with a lower rate of return for purely ideological reasons.”

Manchin stated: “At a time when our country is already facing economic uncertainty, record inflation, and increasing energy costs, it is irresponsible of the Biden administration to jeopardize retirement savings for more than 150 million Americans for purely political purposes. I’m proud to join this bipartisan resolution to prevent the proposed ESG rule from endangering retirement incomes and protect the hard-earned savings of American families.”

It may seem counterintuitive that Americans’ pension investments would be targeted to support political causes, but according to Derek Kreifels, CEO of the State Financial Officers Foundation, “if you’re not able to get bills passed in Congress, and you can no longer count on the Supreme Court to back you, this is the next frontier: Use corporate and private [money] to push through social policy and social change in this country.”

This misuse of people’s savings, he told The Epoch Times, is “putting retirees at risk that they will not have the funds that they will need when they retire.”

ESG Funds Underperform the Market

The Senate resolution cited studies by the University of California–Los Angeles and New York University that found that ESG funds underperformed the broader market over the past five years, averaging a 6.3 percent return compared to an 8.9 percent market return. A similar measure was introduced in the House by Rep. Andy Barr (R-Ky.).

The Senate resolution is supported by 100 public policy organizations, state treasurers, and retirement advocacy groups.

“Forcing Americans into ESG investment is not only politically inappropriate, it is also financially irresponsible,” they said in a letter.

“According to research from the University of Chicago, mutual funds scoring highly on ESG factors are constantly outperformed by funds rated lowest for ESG. Moreover, 85 percent of the country does not even know what ‘ESG’ is and therefore would not be aware of the financial risks their retirement account managers are subjecting them to when they actively pursue ESG investment decisions.”

The Labor Department policy, called “Prudence and Loyalty in Selecting Plan Investments and Exercising Shareholder Rights,” permits fund managers to include ESG factors when choosing where to invest pensioners’ money and how to vote the shares on pensioners’ behalf. The DOL regulates private pensions according to the 1974 Employee Retirement Income Security Act (ERISA), which was enacted to protect pensioners’ retirement money from corruption and malfeasance by fund managers and to ensure that assets were only invested for the goal of maximizing returns.

President Joe Biden’s DOL ruling overturns a directive enacted under the Trump administration that stated that retirement funds under ERISA can only be invested for pecuniary reasons.

In addition to action in Congress, 25 states joined last week to sue the Biden administration over this issue. The lawsuit stated that the directive “undermines key protections for retirement savings of 152 million workers—approximately two-thirds of the U.S. adult population and totaling $12 trillion in assets—in the name of promoting environmental, social, and governance (‘ESG’) factors in investing, including the Biden administration’s stated desire to address climate change.”

Among Biden’s first actions when taking office was issuing his executive order on tackling the so-called “climate crisis,” which stated: “It is the policy of my administration to organize and deploy the full capacity of its agencies to combat the climate crisis.” A changing climate, the order states, “threatens our people and communities, public health and economy, and, starkly, our ability to live on planet Earth.”

Speaking at the United Nations Climate Change Conference in November 2022, former Vice President Al Gore said that “we can continue the culture of death that surrounds our addiction to fossil fuels by digging up dead life forms from eons ago and burning them recklessly in ways that create more death, including 8.7 million people every year that die from the air pollution principally caused by the burning of fossil fuels.”

Currently, about 84 percent of the world’s energy is generated by oil, gas, and coal. Wind and solar, despite decades of ESG investments, government subsidies, and regulatory support, still account for less than 5 percent of energy consumed.

According to a 2021 National Geographic report, “disasters related to weather and climate have become less deadly over time.” Over the past 50 years, “the number of deaths tied to those disasters has dropped nearly threefold,” the report states.

In addition, a report by the Reason Foundation on per-capita weather-related deaths from 2000 to 2010 stated that “the worldwide death rate from weather happenings has dropped over 98 percent since the 1920s.”

Currently, nearly half of the world’s people depend on synthetic fertilizers, a derivative of natural gas, to feed themselves.

ESG financial assets—investments that seek to reduce the production of fossil fuels—under management have been estimated to have reached $55 trillion globally in 2022, more than double the size of America’s GDP. They are projected to grow to nearly $100 trillion by 2025, comprising more than half of all assets under management.