Legislation to Thwart Use of ESG in Retirement Plans Resurfaces
With this year’s change in administration and total Republican control of Congress, the ongoing battle over the use of environmental, social and governance (ESG) factors when making investment decisions for retirement plans has perhaps entered a new phase.
Rep. Rick Allen (R-Ga.), who is chairman of the House Education and Workforce’s Subcommittee on Health, Employment, Labor, and Pensions, has reintroduced legislation, with some changes, that would require ERISA retirement plan fiduciaries to prioritize financial returns over non-pecuniary factors when making investment decisions on behalf of their clients.
In essence, the Protecting Prudent Investment of Retirement Savings Act (H.R. 2988) seeks to repeal the Biden-era regulatory guidance issued in December 2022 that allowed plan fiduciaries to consider climate change and other ESG factors when they select retirement investments and exercise shareholder rights, such as proxy voting. As a replacement, the bill would codify the “pecuniary-only” standard that was the basis for the rule issued in the final days of Trump’s first term, but later rescinded under the Biden administration.
“Americans’ hard-earned retirement savings should never be jeopardized by politically motivated mismanagement. Unfortunately, the Biden-Harris Administration made this possible with an overreaching rule that allows fiduciaries to aggressively invest retirees’ money in ESG funds — which often charge steeper fees, carry higher risk, and have lower returns,” Rep. Allen said in a statement.
Allen added that he was “grateful for Chairman Walberg’s support.” Rep. Tim Walberg (R-Mich.) is chairman of the House Education and Workforce Committee, which has jurisdiction over ERISA issues and is where the bill was referred to for consideration.
“I’m proud to support a bill, introduced by HELP Subcommittee Chairman Rick Allen, to protect Americans’ financial futures and promote retirees’ interest in a secure retirement — instead of out-of-touch ESG agendas,” Chairman Walberg stated.
The Latest Iteration
The bill includes provisions that would amend ERISA to specify that a retirement plan fiduciary shall be considered acting solely in the interest of the participants and beneficiaries only if:
- the investment does not subordinate the interests of the participants and beneficiaries in their retirement income or financial benefits under the plan to other objectives, including ESG objectives; and
- the fiduciary does not sacrifice investment return or take on additional investment risks to promote goals unrelated to the plan or purposes of the plan.
The bill does allow for investment options that use “non-pecuniary” factors to be used in a brokerage window, provided certain conditions are met, including various disclosure requirements to participants. H.R. 2988 also provides some leeway for ESG factors to be considered through a “tiebreaker test,” but would require stringent documentation requirements among fiduciaries. It would also specifically prevent so-called non-pecuniary ESG factors from being used for default investment options.
Last Congress, the House of Representatives passed similar legislation sponsored by Rep. Allen, but it wasn’t considered in the Senate. Changes that were included in that bill have now been added to H.R. 2988, including the Retirement Proxy Protection Act, the No Discrimination in My Benefits Act, and the Providing Complete Information to Retirement Investors Act (which addresses brokerage window disclosures discussed above).
ESG Act
In March, Rep. Andy Barr (R-Ky.) introduced the ‘‘Ensuring Sound Guidance Act of 2025’’ or the ‘‘ESG Act of 2025” (H.R. 2358), which would amend the Investment Advisers Act to specify that pecuniary factors may not be subordinated to or limited by non-pecuniary factors in determining whether an investment advisor is acting in the best interest of a customer — unless the customer provides informed consent, in writing, that such non-pecuniary factors be considered.
The bill also directs the Securities and Exchange Commission to conduct several studies to assess the impact of ESG investing as it relates to the municipal bond and securities markets.
This legislation was referred to the House Financial Services Committee. Reps. Allen and Barr had previously introduced these changes as one bill.
Meanwhile, the Trump-led Department of Labor recently asked the court overseeing the litigation challenging the Biden-era ESG rule to pause the ongoing proceedings, indicating that it plans to reconsider and possibly rescind the rule.