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Conservative economists are urging the Trump administration’s Department of Government Efficiency (DOGE) to take action on a Biden-era executive order that they argue allowed private pension managers to pursue a controversial investing strategy.
Two economists at the American Institute for Economic Research (AIER) sent DOGE a letter on Thursday urging the administration to rescind the Labor Department rule finalized in January 2023: the Prudence and Loyalty in Selecting Plan Investments and Exercising Shareholder Rights Rule.
They argue the Biden-era rule allowed pension managers to consider environmental, social and governance (ESG) investment criteria such as climate change, green energy or other nonpecuniary factors rather than focusing on shareholder returns.
“This new rule, the Biden-era rule that we’re suggesting gets looked at and changed, allows for just a handful of fund managers — it could be based on whatever ideological axe they have to grind — to make decisions on the basis of nonpecuniary ESG factors, and they don’t have to demonstrate or really even state that their decisions benefit the people whose funds they’re managing,” Dr. Paul Mueller, a senior research fellow at AIER, told FOX Business.
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The Biden pension rule allowed private fund managers to consider ESG criteria in investment decisions. (Tasos Katopodis/Getty Images/File)
“They don’t have to make the case, they don’t have to demonstrate it, they don’t have to show it, and therefore, if you don’t have to show it, we shouldn’t be surprised if, in some cases or many cases, the nonpecuniary factors they invest along might make the pensioners worse off,” Mueller added.
Thomas Savidge, a research fellow at AIER, told FOX Business that despite the rule’s name suggesting it leads to “prudence” in investment decisions in exercising shareholder rights, the reality is it shows “anything but prudence in that.”
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ESG encourages investments on broader criteria than returns. (iStock)
“It kind of muddies the waters where these plan managers are allowed to select these kind of ESG or politically motivated investments because, as we’re already seeing, the ESG label is kind of dying out,” Savidge said, though he added that “it’s likely going to come back under a moniker.”
“Ten years ago, it was sustainable investing. You had corporate social responsibility — just different labels for kind of the same activist investing strategies — and it was ESG for a while, but I’m sure it’ll be something else in a couple years,” he said.
Asset managers and investment firms have moved away from ESG branding amid political blowback as Republican-led states and conservative interest groups mount legal challenges aimed at unwinding the policies.
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Financial regulators have cracked down on so-called “greenwashing” by investment funds offering exchange-traded funds or other ESG-oriented investment products due to the funds failing to abide by their stated criteria or by companies exaggerating the sustainability of their operations to meet ESG standards.
Conservative economists are urging DOGE to look at rescinding the Biden administration’s rule. (Samuel Corum/Getty Images/File)
Mueller said after the Biden administration’s rule was implemented, it allowed for more discretion and politicized investing decisions by fund managers, which led to a rise in the number of U.S. firms signing on to global ESG investing commitments.
The economists also said that under the Trump-era rule, which was reversed by the Biden rule, fund managers could offer ESG investing if they could prove it was as good or better than a regular investment strategy or if the beneficiaries whose funds were being managed explicitly stated that they prefer ESG investing even if it results in diminished returns.
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“This really jeopardizes pensions for the retirement security of thousands of working-class folks and people who are depending upon these pensions as their primary source of retirement income,” Savidge said.
