House Republicans are keeping up with their efforts to pump the brakes on so-called “woke” investing with fresh legislation that could impose restrictions on financial advisors and retirement funds.
Rep. Andy Barr, R-Ky., will propose a bill Wednesday that would aim at funds that examine environmental, social and governance issues, known as ESG. By amending the Employee Retirement Income Security Act to mandate that retirement funds solely focus on maximising profits, Barr’s plan would restrict the availability of ESG investments.
Retail investors would also be alerted if their financial advisors put their money in an ESG. Advisors would also have to disclose the variations in performance and fees between ESG funds and a comparable index. ESG investing, according to supporters, aims to advance social good, but opponents claim it harms investors.
“Environmental, social and governance investing has become a cancer and a fraud within our capital markets, steering retail investors, sometimes unwittingly, into lower-performing, less diversified and higher-fee funds,” Barr said to CNBC.
Barr’s bill doesn’t particularly block funds from being invested in ESG options. Rather, his goal is to make sure investors’ returns are put ahead of social and environmental goals. Investors in ESGs would be able to do so, but they would need to give their permission in writing.
Republicans have already pushed for restrictions on ESG investment. Earlier this year, both chambers of Congress voted to roll back a Biden administration rule allowing fiduciaries to think about ESG factors when they make investment decisions. Three Democrats — Rep. Jared Golden and Sens. The rollback was backed by Jon Tester and Joe Manchin. President Joe Biden ended up vetoing the bill, and an effort to override it fell short. Republicans supported similar legislation that Barr had previously introduced, but Democrats did not.
Barr’s more comprehensive ESG bill may be a part of a larger Republican effort on the House Financial Services Committee to raise concerns about ESG investing in July, even though it is unlikely to reach Biden’s desk or even the Senate. The committee’s senior member Barr said several hearings and a package of bills are scheduled on the subject.
“Whether you are a Republican, a moderate or a Democrat, or conservative or liberal, we’re trying to depoliticize investing in America,” Barr said. “Your 401(k), your 529, your investment account should work for you. It should deliver returns. It shouldn’t be a mandatory political statement.”
The federal drive comes as other states with Republican governors have implemented or are considering similar restrictions on ESG financing. Among them is Kentucky, where Democratic Governor Andy Beshear signed one of the strictest anti-ESG laws, requiring the state’s fiduciaries to maximize gains. Kentucky is also where Barr is from.
The federal government should not interfere with how states choose to invest various funds, according to Rep. Brad Sherman, a California Democrat who serves on the House Financial Services Committee.
“I believe in democracy. States get to do what states want to do,” he said.
