The Congressional Review Act: A Republican-controlled Measure to Overturn the Investment Rule on Retirement Funds and Its Biden’s Presidency

Most legislation passed by the current GOP-controlled House will not be able to pass the Democratic-controlled Senate. Only a simple majority in the Senate was needed to overturn the investment rule. The Congressional Review Act allows Congress to roll back rules from the executive branch with little or no need for the Senate’s approval.

Opponents of the rule have argued that it politicizes retirement investments and that the Biden administration is using it as a way to push a liberal agenda on Americans.

The House passed the measure on Tuesday, and it will go to the president for his consideration. The administration, however, has issued a veto threat. As a result, passage of the resolution could pave the way for Biden to issue the first veto of his presidency.

Opponents of the rule could try to override a veto, but at this point it appears unlikely they could get the two-thirds majority needed in each chamber to do so.

A simple majority was required for the resolution to pass. The vote was 50 to 46 with Democratic senators voting with Republicans.

The Congressional Review Act gives Congress the ability to roll back regulations from the Executive Branch without needing to clear the Senate’s 60-vote threshold for most legislation.

McConnell said that the Biden Administration wants to let Wall Street use workers’ hard-earned savings to pursue left-wing political initiatives.

Republican Sen. John Barrasso of Wyoming said at a news conference earlier this year, “What’s happened here is the woke and weaponized bureaucracy at the Department of Labor has come out with new regulations on retirement funds, and they want retirement funds to be invested in things that are consistent with their very liberal, left-wing agenda.”

Supporters of the rule argue that it is not a mandate – it allows, but does not require, the consideration of environmental, social and governance factors in investment selection.

Senate Majority Leader Chuck Schumer said on Wednesday that Republicans are “using the same tired attacks we’ve heard for a while now that this is more wokeness. … Nothing in the Labor Department rule imposes a mandate, that’s what Republicans are missing or ignoring.

The 2022 Rule of Retirement Investments: Defending the Washington, DC Crime Law and Imposing an Executive Order to Override the House Republican Measure

“This isn’t about ideological preference, it’s about looking at the biggest picture possible for investments to minimize risk and maximize returns,” he said, noting it’s a narrow rule that is “literally allowing the free market to do its work.”

The statement of administration policy warning that Biden would veto the measure if presented with it similarly states, “the 2022 rule is not a mandate – it does not require any fiduciary to make investment decisions based solely on ESG factors. The rule makes sure that retirement plan fiduciaries engage in a risk and return analysis of their investment decisions and recognizes that these factors can be relevant to that analysis.

Republicans are trying to get a measure to repeal Washington, DC’s crime law passed with a simple majority vote in the Senate.

Many Democrats oppose overriding the DC law. They argue local officials should make their own laws free of congressional interference and decry Republicans as hypocrites since they typically promote state and local rights.

President Biden just issued the first veto of his presidency over Republican legislation that aims to limit retirement fund managers from incorporating environmental, social and governance factors into their financial analysis.

Researchers compared the performance of funds that were invested in ESG to funds that weren’t. There are 20,000 mutual funds, and the researchers looked at the ratings from Morningstar.

Biden supports free markets in analyzing the long-term predictors of financial performance, including traditional financial data like sales growth, cost margins and productivity, as well as information related to social factors like carbon emissions, labor practices and governance factors like transparency.

How Can ESG Investors Be Fooled by Environmental, Social or Governance Constraints? A Critical Reflection on the CNN Viewpoint on Investments in Deep-Water Resources

Some studies show a positive relation between ESG investing and investor returns. However, the totality of the empirical evidence from academic finance research papers suggests a negative relation between ESG investing and investor returns.

The logic here is straightforward and not political. Our success in transitioning to clean energy or the degree of global warming can affect the value of some assets. Consider the value of a deep-water oil field or coal mine in which investment today is only profitable if demand for fossil fuels in 2050 is supported by a large fleet of fossil fuel vehicles and coal-burning power plants.

If zero-emission vehicles dominate global markets in 2050 and solar and wind power continue to decline in costs at current rates, any investments in that oil field or coal mine today will not earn a positive return.

Over time environmental factors and their evolution can alter the expected value of an investment. If you voted Republican or Democrat in the last election, you should be able to have your pension invested by someone who takes these factors into account rather than being banned from doing so by Republican legislation.

Similar arguments can be made for incorporating the likely cost of air or water pollution regulation, human rights lawsuits, minimum wage legislation and anti-money laundering restrictions into forecasts of companies’ earnings and relative performance. In each case, future revenues, costs and productivity are impacted by environmental, social or governance factors.

Forbidding pension fund managers from incorporating it into their analysis would be akin to forbidding them from considering the impact of artificial intelligence, the Russian invasion of Ukraine or the growing US-China geopolitical rivalry. The free market should mean that asset managers should be able to analyze the factors and determine whether they are material or not.

Since managers publicly highlight their ESG focus, fund managers will invest in companies that are not performing well.

Editor’s Note: Sanjai Bhagat is the author of “Financial Crisis, Corporate Governance, and Bank Capital,” Cambridge University Press. He is a professor in the University of Colorado. The views expressed here are his own. Read more opinion on CNN.

Corporate managers should not focus on ESG investing if they want to be redundant: A research study in the US and implications for EOG

Almost one third of the funds’ assets are in Europe; however, as of December, they had over half of their assets in the US. Investment money flowing into global sustainable funds peaked in the first quarter of 2021. During the past two years, there has been a dramatic decline in investor interest in ESG funds, especially in the US.

Similarly, non-ESG or traditional investing (corresponding to unconstrained optimization) will always lead to a more optimal outcome (higher risk-adjusted returns) than ESG investing — or constrained investment in companies that claim an ESG focus.

Morningstar gave funds focused on high sustainability investments “five globes” and funds focused on low sustainability investments “one globe.” Funds with five globes were found to perform better than funds with only one globe, using the value weighted market portfolio as a benchmark.

This negative relation can be understood in the context of competitive labor and product markets. In such an environment, even if corporate managers are solely focused on maximizing long-term shareholder value, they will already be focused on the well-being of employees, customers, the community and the environment. Focusing on ESG, therefore, can be redundant. Managers recognizing that their employees and customers have other options will treat their employees fairly and offer quality products and services to their customers at attractive prices.

A recent paper suggests that corporate managers will highlight their focus on EOG when they fail to meet earnings expectations. If their financial performance exceeds expectations, they’re unlikely to make public statements about Esg.

Source: https://www.cnn.com/2023/03/22/opinions/biden-veto-esg-retirement-bhagat/index.html

Constrained Optimization vs. Nonconstrained Optimization: Why employees are forced to work from the office or at a retail cubicle?

Finally, to maximize desirable outcomes such as quarterly sales per store, employee satisfaction ratings, etc., businesses use insights from optimization theory, which says that unconstrained optimization will always lead to a more optimal outcome than constrained optimization.

If employees are forced to work from the office, this results in lower employee satisfaction than if they can work from home a few days a week.