Representative Andy Barr of Kentucky, Speaker of the House Kevin McCarthy, and Representative Bill Huizenga of Michigan attended a signing ceremony for a resolution disapproving a rule related to “Prudence and Loyalty in Selecting Plan Investments and Exercising Shareholder Rights” in the U.S. Capitol on March 9, 2023.
Image Credit: Tom Williams | CQ-Roll Call, Inc. | Getty Images
House Republicans are taking further steps to address what they consider to be problematic aspects of socially conscious investing with new legislation. This legislation aims to implement restrictions on financial advisors and retirement funds.
On Wednesday, Representative Andy Barr, a Republican from Kentucky, will introduce a bill that specifically targets funds that take environmental, social, and governance issues (ESG) into consideration. Barr’s proposal seeks to update the Employee Retirement Income Security Act and mandate retirement funds to solely focus on maximizing profits, thereby limiting their ability to invest in ESG options.
The bill also requires financial advisors to inform retail investors if their funds are being invested in ESGs. Furthermore, advisors must disclose the differences in fees and performance between ESG funds and a comparable index. While ESG investing is intended to promote the social good, there are critics who argue that it negatively impacts investors.
“Environmental, social, and governance investing has become a cancer and a fraud within our capital markets, steering retail investors, sometimes unknowingly, into lower-performing, less diversified, and higher-fee funds,” Barr stated during an interview with CNBC.
It is important to note that Barr’s bill does not explicitly prevent funds from being invested in ESG options. Rather, its objective is to prioritize investor returns over social and environmental goals. Individuals who wish to invest in ESGs will still be able to do so, but they will need to provide written consent.
Republicans have previously attempted to limit investments in ESGs. Earlier this year, both chambers of Congress voted to overturn a Biden administration rule that allowed fiduciaries to consider ESG factors when making investment decisions. The bill was supported by three Democrats: Representative Jared Golden and Senators Joe Manchin and Jon Tester. However, President Joe Biden ultimately vetoed the legislation, and attempts to override the veto were unsuccessful. It should be noted that previous similar legislation introduced by Barr was only sponsored by Republicans and not Democrats.
While it is unlikely that Barr’s broader ESG bill will reach President Biden’s desk or even the Senate, it could contribute to a larger effort by Republicans on the House Financial Services Committee to highlight concerns surrounding ESG investing in July. As a senior member of the committee, Barr revealed that several hearings and a package of bills on the topic are planned.
Barr emphasized, “We’re attempting to depoliticize investing in America, regardless of one’s political affiliation. Your 401(k), 529, and investment accounts should work for you, delivering returns, rather than being compulsory political statements.”
This federal push coincides with several Republican-controlled states implementing or considering similar limitations on ESG funding. Among these jurisdictions is Barr’s home state of Kentucky, where Democratic Governor Andy Beshear signed one of the most stringent anti-ESG laws, mandating that the state’s fiduciaries maximize profit.
Democratic Representative Brad Sherman from California, a member of the House Financial Services Committee, believes that the federal government should not interfere with how states choose to invest various funds. He stated, “I believe in democracy. States have the right to make decisions as they see fit.”
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