Caitlin Styrsky

Caitlin Styrsky is a staff writer at Ballotpedia. Contact us at

Supreme Court limits EPA’s regulatory authority over wetlands

The U.S. Supreme Court on May 25, 2023, unanimously held in Sackett v. Environmental Protection Agency (EPA) that the EPA’s regulatory jurisdiction over the nation’s wetlands is limited. The decision echoes the court’s 2022 ruling in West Virginia v EPA, in which the justices limited the scope of the agency’s authority to regulate greenhouse gas emissions.

The decision brings to a close a 14-year legal battle between the Sacketts and the EPA, in which the EPA claimed that the Sackett’s residential lot in Idaho contained wetlands subject to its jurisdiction pursuant to the Clean Water Act (CWA). The Sacketts disagreed and the dispute worked its way through the federal courts in the years following the initial lawsuit.

Justice Samuel Alito delivered the opinion of the unanimous court, arguing that the EPA’s regulatory authority over wetlands only extends to those with “a continuous surface connection to bodies that are ‘waters of the United States.’”

In an opinion concurring in the judgment, Justice Elena Kagan agreed that the EPA’s authority does not extend to the Sackett’s property but expressed concern that the court’s reasoning “substitutes its own ideas about policymaking for Congress’s.”

Additional reading:

SCOTUS hears oral argument in Clean Water Act challenge, declines to take up bump stock case

Sackett v. Environmental Protection Agency (2012)

West Virginia v. Environmental Protection Agency

SCOTUS to hear case challenging Chevron deference

The U.S. Supreme Court on May 1, 2023, agreed to hear Loper Bright Enterprises v. Raimondo—a case that could curb or clarify future applications of Chevron deference by the federal courts.

Chevron deference is an administrative law principle that compels federal courts to defer to a federal agency’s reasonable interpretation of an ambiguous or unclear statute that Congress delegated to the agency to administer. In other words, when Congress passes a law that is unclear or silent on an issue, the agency administering the law may interpret the statute and issue rules to fill in the details. If a court deems the agency’s interpretation reasonable, it will exercise Chevron deference to accept the agency’s position rather than replace the agency’s view with its own. 

While supporters of Chevron deference broadly argue that the doctrine leverages agency expertise, opponents contend that it prevents judges from exercising their constitutional duty to independently interpret the law.

Inconsistent applications of Chevron deference, including by the U.S. Supreme Court, have led scholars and judicial commentators to raise questions about the doctrine’s longevity and anticipate rulings limiting its scope. For example, some analysts suggested the 2021 case American Hospital Association v. Becerra would provide the U.S. Supreme Court with an opportunity to limit Chevron deference. But while the question reviewed by the court centered on Chevron deference, Justice Brett Kavanaugh made no mention of the doctrine in the majority opinion, leading SCOTUSblog analyst James Romoser to question whether “the doctrine may be shunned into oblivion” rather than explicitly overturned.

Similar questions about potential limits to Chevron deference surround Loper Bright Enterprises v. Raimondo in light of the court’s grant of review. The case concerns a group of commercial fishermen challenging a court ruling that applied Chevron deference to uphold an agency interpretation of a federal fishery law requiring the fishermen to foot the bill for compliance monitors. The U.S. Supreme Court granted review of the petitioner’s question asking whether the court should overturn Chevron deference or, at a minimum, clarify when certain instances of statutory silence constitute the type of ambiguity that would compel deference. Stay tuned!

Additional Reading:

Deference (administrative state)

Loper Bright Enterprises v. Raimondo

American Hospital Association v. Becerra

Bargaining in Blue: Tennessee Senate votes to eliminate community-led police oversight boards

Bargaining in Blue

Bargaining in Blue, a monthly newsletter from Ballotpedia, provides news and information on police collective bargaining agreements (CBAs), including the latest news, policy debates, and insights from Ballotpedia’s analysis of police CBAs in all 50 states and the top 101 cities. 

In this edition: 

  • On the beat: Tennessee State Senate passes legislation to eliminate community-led police oversight boards
  • Around the table: Perspectives from the negotiating table, scholars, and the media on citizen police oversight boards in police CBAs
  • Insights: A closer look at citizen police oversight boards in the Nashville and Memphis CBAs and key takeaways from Ballotpedia’s analysis

On the beat

Tennessee Senate votes to eliminate community-led police oversight boards

The Tennessee State Senate on April 6, 2023, voted 26-5 to advance a bill that aims to eliminate community-led police oversight boards in Nashville and Memphis. S.B.0591, which now moves to the state House, would eliminate community-led police oversight boards and replace them with police advisory committees appointed by the city’s mayor.

Community oversight boards allow community members to investigate citizen complaints of officer misconduct. In contrast, the proposed police advisory and review committees would not have investigative power over citizen complaints and would be required to transfer complaints to the police department’s internal affairs division. The committees would consist of seven members appointed by the city’s mayors instead of being appointed by the community, as the current model requires.  

State Rep. Elaine Davis (R), the bill’s sponsor, argued that police advisory and review committees would “strengthen the relationship between the citizens and law enforcement agencies, to ensure a timely fair and objective review of citizen complaints while protecting the individual rights of individual law enforcement officers,” according to Tennessee Lookout. Davis modeled the proposed changes on the Knoxville Police Advisory and Review Committee, established in 1998.

Jill Fitcheard, the executive director of Nashville’s Community Oversight Board, argued against the legislation and said that “if left without a separate entity with the authority to independently investigate these instances of police misconduct, the police will continue to police themselves, which only builds suspicion and distrust of law enforcement,” according to Tennessee Lookout

Want to go deeper?

Around the table

Perspectives on community police oversight boards 

The National Association for Civilian Oversight of Law Enforcement, a 501(c)(3) nonprofit that aims to promote “greater accountability through the establishment or improvement of citizen oversight agencies,” according to its website, argued in a report that community oversight of police leads to accountability and transparency. The group called for legislation to promote the use of civilian oversight boards in local police departments:

In the United States, law enforcement operates under a shroud of secrecy with far less democratic accountability than our other public institutions. Police Oversight Bodies are limited in power under most state laws. Police departments are able to control the Oversight Bodies’ access to the data, evidence, witnesses, and personnel files that they need for meaningful oversight.

A first step: The Congress discussed some critical legislation, but it didn’t pass. However, state legislatures and municipalities, can and should pass legislation permitting localities to establish Civilian Oversight Bodies. Localities should be able to give these bodies subpoena power to compel the production of documents and witnesses, allowing them to investigate, gather, analyze, and review information; produce public reports; and to make informed recommendations related to policing issues of significant public interest. Localities should also be able to empower these bodies to make the final decisions on disciplining officers, adjudicating use of force, recruiting practices, and creating policies. Localities can empower these bodies with the independence that is necessary to have a lasting impact.

In an article published in The Washington Post, reporters Nicole Dungca and Jenn Abelson summarized arguments among law enforcement officers and police unions against the use of community oversight boards. The article also highlights arguments in favor of limiting the use of oversight boards through collective bargaining agreements:

Police have generally argued that citizens do not need to investigate police because internal affairs units or other law enforcement agencies already do so. In many cities, such oversight efforts have been limited by strict collective bargaining agreements with police unions and, in 22 states, through laws known as officers’ bills of rights, according to the National Conference of State Legislatures. Maryland, the first state to enact such legislation, recently approved repealing the law.

Jim Pasco, executive director of the national Fraternal Order of Police, described civilian monitors as well-meaning but ill-equipped to judge police officers. He said citizens lack the expertise and experience of trained law enforcement professionals.

“It would be akin to putting a plumber in charge of the investigation of airplane crashes,” he said. “It doesn’t matter how good a plumber that he or she is. It gives no level of expertise in terms of evaluating the cause of a plane crash.”


Nashville and Memphis CBAs on community-led police oversight boards

The Nashville Fraternal Order of Police entered into a memorandum of understanding (MOU) with the Metropolitan Government of Nashville and Davidson County, Tennessee in 2018. The MOU does not address community oversight boards, however, the Metropolitan Nashville Police Department entered into a separate MOU with the Nashville Community Oversight Board in 2020 after the city of Nashville voted to create a community oversight board in 2018.  

Article I of the MOU between the Metropolitan Nashville Police Department and the Nashville Community Oversight Board (COB) states the following:

It is understood and agreed that, under the Metropolitan Charter, the COB has the independent authority to investigate allegations of misconduct by MNPD Officers and that a cooperative relationship between the Department and the COB is in the best interest of Metropolitan Nashville and its communities. To these ends, the Department embraces the concept of a community oversight board and is committed to carrying out the provisions of Article 11 of the Metropolitan Charter and Tenn. Code Ann. § 38-8-312.

The Parties enter into this Memorandum of Understanding (MOU) with the goal of ensuring cooperative interaction such that police services are delivered in Metro Nashville in a manner that effectively ensures officer and public safety and promotes public confidence in the COB and Department and in the services each delivers, and provides the COB with the same access to crime scenes, documents, information, and witnesses, to the maximum extent legally permissible, as the Department’s Office of Professional Accountability (OPA).

The Memphis Police Association entered into a collective bargaining agreement with the city of Memphis, Tennessee, in 2022. The CBA does not outline a requirement for a community oversight board. The city nonetheless has had a civilian law enforcement review board (another commonly used term for community oversight boards) in effect since 1994.  

Key takeaways on community oversight boards

Ballotpedia’s analysis of police CBAs in all 50 states and the top 101 cities featured the following information about community oversight boards in police CBAs:

  • The following 10 city-level CBAs allow for citizen review boards to look into complaints of officer misconduct:
    • Albuquerque, New Mexico
    • Austin, Texas
    • Baltimore, Maryland
    • Houston, Texas
    • Lexington, Kentucky
    • Los Angeles, California
    • Omaha, Nebraska
    • Orlando, Florida
    • San Antonio, Texas
    • Seattle, Washington
  • There are 0 state-level CBAs that allow for citizen review boards to look into complaints of officer misconduct 

Work requirements proposal included in debt ceiling bill

The U.S. House of Representatives on April 26, 2023, voted 219-210 to pass H.R. 2811, the Limit, Save, Grow Act of 2023, which aims to raise the federal government’s debt ceiling and includes provisions related to work requirements for certain able-bodied adults receiving Medicaid, Temporary Assistance for Needy Families (TANF) and Supplemental Nutrition Assistance Program (SNAP) assistance.

The proposal would require applicable Medicaid and SNAP recipients to complete 80 hours a month of community engagement or work-related activity. Applicable individuals under the proposal generally include adults between the ages of 19 and 55 who are physically able to work, not pregnant, and not serving as a caregiver to a dependent or incapacitated person. The proposal also includes provisions aimed at reducing TANF caseloads by modifying certain reporting and performance measures for the program’s existing work requirements.

In his April 19 remarks on the House floor, Speaker Kevin McCarthy (R-Calif.) argued, “Our plan ensures adults without dependents earn a paycheck and learn new skills. By restoring these commonsense measures, we can help more Americans earn a paycheck, learn new skills, reduce childhood poverty and rebuild the workforce.”

Democrats, including House Agriculture Committee ranking member David Scott (D-Ga.), have argued against the work requirements. Scott stated in a press release, “Holding food assistance hostage for those who depend on it—including 15.3 million of our children, 5.8 million of our seniors and 1.2 million of our veterans—in exchange for increasing the debt limit is a nonstarter.” President Joe Biden (D) stated that he would veto the legislation if it reached his desk.

Additional reading:

Legislation related to work requirements for public assistance programs

Court cases related to work requirements for public assistance programs

REINS Act included in debt ceiling bill

The U.S. House of Representatives on April 26, 2023, voted 219-210 to pass H.R. 2811, the Limit, Save, Grow Act of 2023, which aims to raise the federal government’s debt ceiling and includes provisions related to congressional review of agency rulemaking known as the Regulations from the Executive in Need of Scrutiny (REINS) Act.

The REINS Act would require congressional approval of certain major agency regulations before the rules could take effect. The REINS Act defines major agency regulations as those that have financial impacts on the U.S. economy of $100 million or more, increase consumer prices, or have significant harmful effects on the economy. A version of the REINS Act was passed in Wisconsin in 2017. A Florida law with similar provisions to the REINS Act was enacted in 2010. Republican lawmakers have introduced the REINS Act during every session of Congress since the 112th Congress (2011-2012).

Congresswoman Kat Cammack (R-Fla.) introduced the REINS Act in the 118th Congress with more than 170 Republican cosponsors. Following the vote on the Limit, Save, Grow Act, Cammack released the following statement: “With the passage of the Limit, Save, Grow Act, the most historic regulatory reform in history—the REINS Act—is one step closer to law. The regulatory regime has gone unchecked for decades and it’s time we return power to the American people, not the nameless, faceless bureaucrats in Washington.”

President Biden has stated that he will veto the Limit, Save, Grow Act if it reaches his desk. White House Press Secretary Karine Jean-Pierre stated in January, “Congress is going to need to raise the debt limit without—without—conditions and it’s just that simple,” according to ABC News.

Additional reading:

Major rule

Regulatory review

House fails to overturn veto of ESG legislation

Economy and Society is Ballotpedia’s weekly review of the developments in corporate activism; corporate political engagement; and the Environmental, Social, and Corporate Governance (ESG) trends and events that characterize the growing intersection between business and politics.

ESG Developments This Week

In Washington, D.C.

House fails to overturn veto of ESG legislation

The House of Representatives on March 23 failed in its attempt to overturn President Joe Biden’s (D) veto of the Congressional Review Act (CRA) resolution Congress had sent to his desk that sought to block a Labor Department rule permitting ESG considerations in retirement plans.

The U.S. House failed Thursday to override President Joe Biden’s first veto—of a Republican-led bill that would have banned the consideration of environmental, social or governance issues in retirement and other investment decisions.

Republicans failed to mount the necessary two-thirds votes needed in the House to override the president’s veto of the “ESG” investment bill. The override failed on a 219-200 vote mostly along party lines as most Democrats opposed.

The standoff was a first test of the strength of the new Republican majority in the House as it confronts the Democratic president in the White House.

House Republicans had succeeded in passing the legislation through Congress last month, part of their agenda to undo so-called “woke” government policies that strive to bring new ways of thinking about social and environmental issues with equity and accountability.

The legislation was a pushback against the idea of “ESG” investing, which takes into account a company’s environmental social and governance record, including on issues like climate change….

Using special procedures, the House and Senate approved the rollback with a simple majority in both chambers, but there was not enough support in Congress to mount the veto override.

In the states

Florida continues its pushback against ESG

The Florida State Legislature on March 24 took the first step toward passing a law banning the use of ESG in all state and local investments. The Florida House passed the bill 80-31. It will now move on to the state Senate for consideration. 

In a priority of Speaker Paul Renner, R-Palm Coast, the Florida House on Friday passed a measure that would prevent consideration of “environmental, social and governance” standards in investing government money.

The Republican-controlled House voted 80-31 to approve the bill (HB 3) targeting what is known as “ESG.”

Rep. Kimberly Daniels, D-Jacksonville, crossed party lines to join Republicans in supporting the bill. Gov. Ron DeSantis and members of the state Cabinet last year directed investment decisions in the Florida Retirement System Defined Benefit Plan to prioritize the highest returns without consideration of environmental, social and governance standards.

The bill, which will go to the Senate, would expand that to all funds invested by state and local governments. The bill would require that state and local-government investment decisions be made “solely on pecuniary factors” and would prevent “sacrificing investment return or undertaking additional investment risk to promote any non-pecuniary factor.”

It would prevent government fund managers from considering issues such as climate change and social diversity when deciding how to invest money.

Kansas passes legislation opposing ESG

The Kansas House also passed a bill on March 23 that would prohibit the use of ESG factors in state and local pension contracting and investments. Supporters and opponents alike questioned whether the bill would have much impact.

Bipartisan frustration flourished during Kansas House debate on a bill requiring state and local governments to ignore environmental and social factors and focus exclusively on achieving the greatest financial return when making contract decisions and pension investments.

Legislation approved Thursday by the House on a vote of 85-38 and forwarded to the Kansas Senate would amend state law to force the Kansas Public Employees Retirement System to concentrate on the fiduciary duty of maximizing monetary gain with a portfolio serving teachers and other government workers. The bill also would forbid the state, as well as cities, counties and school boards, from giving weight to environmental, social or governance criteria, or ESG, when signing contracts.

“We’re seeing governments weaponize and use pension systems and government contracts to further their ideological agendas,” said Rep. Nick Hoheisel, a Wichita Republican. “Most folks in this chamber, at least on my side, believe we should invest public funds with the best return on investment possible.”…

House Bill 2436 would make it illegal to give preference or to discriminate against specific businesses, including those engaged in nuclear, oil, coal or natural gas operations, agriculture production, forestry, mining, and firearm and ammunition manufacturing.

The legislation in the House would block contracting and investing tied to ESG goals such as diversity by race, ethnicity, sex or sexual orientation. It also specified investments and contracts couldn’t be guided by analysis of whether companies assisted employees in obtaining an abortion or with gender assignment surgery….

The House stopped on procedural grounds an attempt by Rep. Michael Murphy, R-Sylvia, to tack on an amendment requiring Kansas investment advisers to secure written permission from clients before initiating investments aligned with ESG principles.

Murphy said the United Nations had worked for decades to infiltrate the economy with ideas of gender parity, racial justice and poverty reduction. The House bill would offer a measure of protection to key Kansas businesses from dangerous activists who didn’t put profit first, he said….

Rep. Sean Tarwater, R-Stilwell, and Rep. Rui Xu, D-Westood, agreed the bill wouldn’t do much to transform investment activity in Kansas. Tarwater had sought a deeper dive into the ESG problem and referred to the House bill, if signed into law, as “one of the weakest” in the United States.

“I wish we could have done better,” Tarwater said. “Sometimes we try to appease everybody, but we just can’t. It’s a narrow road. You’ve got constituents and businesses on one side. You’ve got your supporters on another. It’s hard to keep everybody happy.”

On Wall Street and in the private sector

Hundreds of investment funds to lose their MSCI ESG ratings

Hundreds of ESG funds are expected to be stripped of their ESG ratings and thousands of others will have their ratings downgraded following the expected release of an MSCI report on the topic, according to The Financial Times (and its sources, including BlackRock itself).

Hundreds of funds are about to be stripped of their environmental, social and governance ratings and thousands more will be downgraded in a shake-up being pushed through by index provider MSCI.

The impact could be particularly acute in Europe where a growing number of institutions will only invest in funds that are deemed to be compliant with ESG-investing principles. In 2022, ESG exchange traded funds accounted for 65 per cent of inflows into European ETFs, according to Morningstar.

MSCI, which has $13.5tn of assets benchmarked against its indices, is yet to publish the results of a consultation on its ESG ratings. But according to a client note from BlackRock’s iShares arm, the world’s largest ETF provider, seen by the FT, the number of European ETFs with a triple-A ESG rating from MSCI is set to tumble from 1,120 to just 54, while the number with no rating will surge from 24 to 462.

The changes are part of a push by index providers to tighten up the criteria for what qualifies as an ESG-compliant fund amid pressure from regulators concerned about the prevalence of so-called “greenwashing” as the sustainable finance industry expands rapidly. The sharp reduction in funds with top ratings could mean that ESG-focused investors have fewer places to put their cash, potentially driving up the price of assets with a sustainable label.

Under MSCI’s changes, all “synthetic” ETFs that use swaps to track the value of assets will lose their ESG rating — even if funds that own the identical underlying assets are rated highly.

In addition, most “physical” funds, which directly hold portfolios of equities or bonds, are likely to have their rating lowered.

The changes, due to take effect by the end of April, will apply to all ETFs and mutual funds globally.

Financial firms change ESG messaging approach

Some banks and financial services firms are changing their messaging around ESG in response to pressure from both sides of the political spectrum. Financial service providers are reducing their ESG emphasis in red state messaging and stressing the ESG aspects of their investment products and policies in blue states, according to a Bloomberg report:

Banks and financial firms are quietly recalibrating how they talk about ESG investing in the US, navigating around potential political fights in order to avoid losing lucrative business.

Eleven major banks and money managers told Bloomberg News that they’re adjusting the language they use in pitch books, marketing materials and investor reports when seeking to sell funds and take part in financial deals. In some cases this means avoiding using the ESG acronym and related terms in Republican-led states, while for blue states, they’re playing up their ESG credentials, according to representatives of the financial firms who asked not to be named discussing private information.

The different language doesn’t reflect a change in underlying services, just an acknowledgment that words need to be adjusted depending on who the client is, the people said. In general, they spoke of a desire to tweak language to refer to the long-term cost of things like flood risk, land erosion and extreme weather, rather than using potentially divisive terms like climate change….

Arthur Krebbers, who runs ESG capital markets for corporates at Edinburgh-based NatWest Group Plc, said fund managers he speaks to are becoming “coy” about referring to their climate goals to US clients. There are “regional nuances” in the choice of words, “particularly in the US,” he said.

Biden vetoes CRA resolution seeking to nullify ESG rule

The Checks and Balances Letter delivers news and information from Ballotpedia’s Administrative State Project, including pivotal actions at the federal and state levels related to the separation of powers, due process, and the rule of law.

This edition: 

In this month’s edition of Checks and Balances, we review the landscape of judicial and legislative challenges to the Environmental Protection Agency’s (EPA) regulatory authority under the Clean Water Act (CWA); oral argument before the United States Supreme Court on the Biden administration’s proposed student loan cancellation plan; and President Biden’s veto of a Congressional Review Act (CRA) resolution aiming to nullify the U.S. Department of Labor’s rule allowing retirement plans to consider certain environmental, social, and corporate governance (ESG) factors in investment-related decisions.

At the state level, we take a look at a proposal in the Idaho State Legislature aiming to modify the legislative approval process for state administrative rules as well as activity in Alabama and Ohio seeking to reduce state administrative regulations.

We also highlight new scholarship from law professor Allison M. Whelan on what Whelan refers to as executive interference in scientific agency decisionmaking. We wrap up with our Regulatory Tally, which features information about the 167 proposed rules and 227 final rules added to the Federal Register in February and OIRA’s regulatory review activity.

In Washington

Judicial, legislative challenges seek to limit federal water regulation

What’s the story?

The Biden administration earlier this year finalized an updated version of the Waters of the United States (WOTUS) rule, effective March 30, 2023, which spurred new legal and legislative challenges to the scope of the Environmental Protection Agency’s (EPA) regulatory authority under the Clean Water Act (CWA). The challenges argue in part that the inclusion of certain wetlands and streams in the definition of navigable waters—an interpretation of the CWA promulgated by the Obama administration, narrowed by the Trump administration, and largely reinstated by the Biden administration—exceeds the scope of the EPA’s regulatory authority.

A coalition of 24 Republican-led states on February 16 filed suit in the United States District Court for the District of North Dakota Eastern Division challenging the lawfulness of the Biden administration’s final WOTUS rule. The suit argues, among other claims, that the rule exceeds the EPA’s statutory authority under the CWA “by encompassing waters with no reasonable connection to ‘navigable waters.’”

Meanwhile, a ruling from the United States Supreme Court is forthcoming in Sackett v. EPA, a 14-year legal challenge that questions the EPA’s regulatory scope under the CWA. In Sackett, the court will decide whether to articulate a standard for recognizing the extent of the EPA’s regulatory jurisdiction over the nation’s navigable waters.

At the same time, a Congressional Review Act (CRA) resolution seeking to nullify the Biden-era WOTUS rule was pending in the United States Senate as of March 17 with support from Democratic Senator Joe Manchin (W. Va.) and 49 Republican senators. The CRA resolution, sponsored by Rep. Sam Graves (R-Mo.) and 170 Republican cosponsors, passed the House on March 9 by a 227-198 vote in which nine Democrats voted with Republican colleagues.

President Biden released a statement on March 6 indicating that he would veto the CRA resolution if it reaches his desk. Biden argued that the resolution would result in an “uncertain, fragmented, and watered-down regulatory system.”

Want to go deeper?

SCOTUS hears oral argument in case challenging Biden administration’s student loan cancellation plan

What’s the story?

The United States Supreme Court on February 28, 2023, heard oral argument in Biden v. Nebraska—a case challenging the U.S. Department of Education’s authority to cancel up to $20,000 of federal student loan debt per borrower under the national emergency provisions of the Higher Education Relief Opportunities for Students Act of 2003 (HEROES Act).

Six states (Arkansas, Iowa, Kansas, Missouri, Nebraska, and South Carolina) on September 29, 2022, filed a lawsuit arguing in part that the debt-cancellation program overstepped the department’s emergency authority under the HEROES Act and that the department could not lawfully stop collecting student loan payments without congressional approval. A district court in October ruled that the states, which further argued that the plan would harm their investments and reduce their tax revenues, did not have standing to sue because they had not demonstrated sufficient harm from the program. The United States Court of Appeals for the Eighth Circuit later blocked the plan from taking effect while the case progressed through the courts.

While “the court’s liberal justices were dubious about the states’ right to sue,” according to SCOTUSblog analyst Amy Howe, “the court’s conservative justices appeared just as skeptical about whether the Biden administration could rely on the HEROES Act to adopt the loan-forgiveness program.” Howe further observed that “a majority of the justices appeared unconvinced that Congress intended to give the secretary of education the power to adopt the program,” adding that “[s]ome of the conservative justices also suggested that the loan-forgiveness program might fail under the ‘major questions doctrine.’”

Want to go deeper?

Biden vetoes CRA resolution seeking to nullify ESG rule

What’s the story?

President Joe Biden (D) on March 20, 2023, vetoed a Congressional Review Act (CRA) resolution passed by Congress that aimed to nullify a rule from the U.S. Department of Labor (DOL) allowing retirement plans to consider certain environmental, social, and corporate governance (ESG) factors in investment-related decisions.

The U.S. House of Representatives voted 216-204 on February 28 to pass the resolution, with Democratic Representative Jared Golden (Maine) joining Republican colleagues. The U.S. Senate passed the resolution on March 1 by a 50-46 vote. Democratic Senators Joe Manchin (W. Va.) and Jon Tester (Mont.) joined Republican senators in supporting the measure.

Manchin described the rule as “another example of how our administration prioritizes a liberal policy agenda over protecting and growing the retirement accounts of 150 million Americans,” according to The Hill.

Nullification of the ESG rule would have resulted in the DOL reverting to a Trump-era regulation requiring that retirement plans only consider pecuniary factors with a material effect on investment risk or return. Biden argued in his veto statement, “There is extensive evidence showing that environmental, social, and governance factors can have a material impact on markets, industries, and businesses. But the Republican-led resolution would force retirement managers to ignore these relevant risk factors” and “would prevent retirement plan fiduciaries from taking into account factors, such as the physical risks of climate change and poor corporate governance, that could affect investment returns.”

Want to go deeper?

In the states

Idaho lawmakers consider changes to legislative approval of agency rules

What’s the story? 

Idaho state lawmakers are considering legislation that would require both chambers of the Idaho State Legislature to approve pending administrative rules before they can take effect.

Idaho law requires the state legislature to reauthorize all of the state’s administrative rules each year. A vote by one chamber of the state legislature is required to either approve or reject a pending administrative rule (except for rules carrying fees, which must be rejected by both chambers). If one chamber approves while the other chamber rejects a rule, the rule nonetheless becomes effective—a framework that has contributed to tension in the past between the state House and state Senate, according to the Idaho Capital Sun. House Bill 206 instead proposes requiring both chambers of the state legislature to approve pending administrative rules.

“This is a fundamental change,” said state Rep. Vito Barbieri (R), the bill’s floor sponsor, during a meeting of the House State Affairs Committee. “As you may know, one house approving a rule and another house rejecting a rule—unless it’s a fee rule—that rule has become effective.”

The House passed the bill by a 59-11 vote on March 1, 2023. The bill was pending in the state Senate as of March 17.

Want to go deeper?

Alabama, Ohio governors propose regulatory reductions

What’s the story? 

Alabama Governor Kay Ivey (R) on March 8, 2023, signed Executive Order 735, which puts a two-year freeze on state agency rulemaking, with certain exceptions. The order also requires each state agency during the two-year period to create an inventory of all rules and rescind any regulatory restrictions on citizens and businesses deemed discretionary. During her State of the State address on March 7, Ivey put forth a goal of reducing the number of regulatory restrictions in the state by 25%.

“In many cases, government regulations that were necessary a decade ago have outlived their usefulness, and it’s time for that to change,” said Ivey in a statement.

Ohio Governor Mike DeWine (R) included a similar proposal earlier this year as part of his proposed budget plan. Under DeWine’s proposal, state agencies would eliminate one-third of the Ohio Administrative Code by rescinding “duplicative provisions, outdated sections, and unnecessary requirements,” according to The Statehouse News Bureau. The proposal also seeks to remove federal regulatory language from the state code in an effort to help small businesses better identify the differences between state and federal requirements. 

Want to go deeper?

Examining scientific agency decisionmaking and the executive branch

New scholarship from law professor Allison M. Whelan in the Vanderbilt Law Review proposes a conceptual framework to address what Whelan refers to as executive branch interference in the scientific decisionmaking of administrative agencies:

“The scientific credibility of the administrative state is under siege in the United States, risking distressful public health harms and even deaths. This Article addresses one component of this attack—executive interference in agency scientific decisionmaking. It offers a new conceptual framework, ‘internal agency capture,’ and policy prescription for addressing excessive overreach and interference by the executive branch in the scientific decisionmaking of federal agencies. The Article’s critiques and analysis toggle a timeline that reflects recent history and that urges forward-thinking approaches to respond to executive overreach in agency scientific decisionmaking. Taking the Trump Administration and other presidencies as test cases, it scrutinizes who should control, or alternatively advance or limit, an agency’s scientific decisions, which are distinct from its policymaking decisions. With its ‘internal agency capture’ framework and the COVID-19 pandemic as its backdrop, the Article illustrates the phenomenon of excessive executive overreach at work in the scientific decisionmaking of the U.S. Food and Drug Administration (‘FDA’), glaringly reflected in the Agency’s decisions on reproductive medicines and protocols to respond to the pandemic. This Article demonstrates that covert internal capture can mislead the public, pose serious risks to individual and public health, undermine the arm’s-length neutrality and objectivity of agencies, and result in lasting consequences for agency legitimacy and reputation.”

Want to go deeper

  • Click here to read the full text of “Executive Capture of Agency Decisionmaking” by Allison M. Whelan

Regulatory tally

Federal Register

Office of Information and Regulatory Affairs (OIRA)

OIRA’s February regulatory review activity included the following actions:

  • Review of 38 significant regulatory actions. 
  • Two rules approved without changes; recommended changes to 35 proposed rules; one rule withdrawn from the review process.
  • As of March 1, 2023, OIRA’s website listed 114 regulatory actions under review.
  • Want to go deeper? 

Biden vetoes Congressional Review Act resolution that aimed to block ESG retirement plan rule

Economy and Society is Ballotpedia’s weekly review of the developments in corporate activism; corporate political engagement; and the Environmental, Social, and Corporate Governance (ESG) trends and events that characterize the growing intersection between business and politics.

ESG Developments This Week

In Washington, D.C.

Biden vetoes Congressional Review Act resolution that aimed to block ESG retirement plan rule

President Joe Biden (D) issued the first veto of his presidency on March 20, blocking Congress’s attempt to rescind the Labor Department’s rule allowing for ESG investing by managers of ERISA-governed retirement plans:

President Joe Biden issued the first veto of his presidency Monday in an early sign of shifting White House relations with the new Congress since Republicans took control in January. He’s seeking to kill a Republican measure that bans the government from considering environmental impacts or potential lawsuits when making investment decisions for Americans’ retirement plans.

It’s just the latest manifestation of the new relationship, and Biden is gearing up for even bigger fights with Republicans on government spending and raising the nation’s debt limit in the next few months.

The measure vetoed by Biden ended a Trump-era ban on federal managers of retirement plans considering factors such as climate change, social impacts or pending lawsuits when making investment choices. Because suits and climate change have financial repercussions, administration officials argue that the investment limits are courting possible disaster.

Critics say environmental, social and governance (ESG) investments allocate money based on political agendas, such as a drive against climate change, rather than on earning the best returns for savers. Republicans in Congress who pushed the measure to overturn the Labor Department’s action argue ESG is just the latest example of the world trying to get “woke.”

Biden, in a video released by the White House, said he vetoed the measure because it “put at risk the retirement savings of individuals across the country.”

Manchin pushes back against Biden’s veto

Sen. Joe Manchin (D-W.Va.), one of the two Senate Democrats to vote for the bill blocking the ESG rule, argued that the Biden administration “continues to prioritize their radical policy agenda over the economic, energy and national security needs of our country, and it is absolutely infuriating”:

Sen. Joe Manchin (D-W.Va.) teed off on President Biden’s decision earlier on Monday to veto a bill that would have nixed a Labor Department rule on environmental, social and governance (ESG) investing.

Manchin, who was one of two Senate Democrats to vote with Republicans to overturn the rule on March 1, called Biden’s decision “absolutely infuriating” in a statement and panned the administration for putting its “radical” and “progressive agenda” ahead of the country’s needs. 

“This Administration continues to prioritize their radical policy agenda over the economic, energy and national security needs of our country, and it is absolutely infuriating,” said Manchin, who is up for reelection next year. “West Virginians are under increasing stress as we continue to recover from a once in a generation pandemic, pay the bills amid record inflation, and face the largest land war in Europe since World War II.”

“The Administration’s unrelenting campaign to advance a radical social and environmental agenda is only exacerbating these challenges. This ESG rule will weaken our energy, national and economic security while jeopardizing the hard-earned retirement savings of 150 million West Virginians and Americans,” Manchin continued. “Despite a clear and bipartisan rejection of the rule from Congress, President Biden is choosing to put his Administration’s progressive agenda above the well-being of the American people.”

Opposition group campaigns against veto

Consumers’ Research, an advocacy group that opposes ESG investing, ran a mobile billboard campaign ahead of Biden’s expected veto criticizing ESG and the Biden administration’s approach to ESG policy:

An advocacy group that opposes environmental, social and governance (ESG) investing on Tuesday launched a mobile billboard campaign around Washington, D.C., ahead of President Biden’s expected veto of legislation targeting the investment practice.

Consumers’ Research, a leading anti-ESG group, is funding mobile billboards and a targeted digital ad campaign criticizing the use of the principles among major money managers such as BlackRock. The mobile billboards will circulate around Capitol Hill and downtown D.C.

The mobile billboards will feature images that say “What does ESG really stand for?” with acronyms like “Erasing Savings Growth” and “Elitists Socialists Grifters,” according to images first shared with The Hill.

“I applaud House leadership and the bipartisan efforts in the Senate that pushed this legislation to the finish line,” Will Hild, director of Consumers’ Research, said in a statement to The Hill. “Unfortunately, President Biden is going to use his first veto to further the progressive agenda instead of putting the interest of the American people first.”

In the states

DeSantis leads 19 states in ESG pushback

Florida Gov. Ron DeSantis (R) announced on March 16 that he and the governors of 18 other states had agreed to join forces to push back against ESG investing and what they view as pro-ESG federal policies:

Florida Gov. Ron DeSantis (R) on Thursday announced an alliance with 18 other states to push back against President Biden’s support for environmental, social and corporate governance investing, known as ESG.

The states argue that Biden’s backing for socially-conscious ESG investing, under which investors weigh sustainability and ethical considerations, is a threat to the U.S. economy.

DeSantis joins with the governors of Alabama, Alaska, Arkansas, Georgia, Idaho, Iowa, Mississippi, Missouri, Montana, Nebraska, New Hampshire, North Dakota, Oklahoma, South Dakota, Tennessee, Utah, West Virginia and Wyoming in what his office called “an alliance to push back” against Biden’s ESG “agenda.”

“The proliferation of ESG throughout America is a direct threat to the American economy, individual economic freedom, and our way of life, putting investment decisions in the hands of the woke mob to bypass the ballot box and inject political ideology into investment decisions, corporate governance, and the everyday economy,” the states wrote in a joint statement.

The 19 states in their joint statement said they plan to lead state-level initiatives “to protect individuals from the ESG movement,” including potentially blocking ESG at the state and local levels and withholding state pension funds and state-controlled investments from firms that use ESG.

“We as freedom loving states can work together and leverage our state pension funds to force change in how major asset managers invest the money of hardworking Americans, ensuring corporations are focused on maximizing shareholder value, rather than the proliferation of woke ideology,” the states wrote.

Kansas legislature considers proposals to restrict ESG considerations in public pensions

Kansas state lawmakers have been trying to develop a bill restricting ESG considerations in public pensions. In an effort to slow or amend such legislation, some businesses and others cited a report suggesting that banning ESG could hurt Kansas public pensioners:

Conservative Republicans who want to thwart socially and environmentally conscious investing are now being pushed to water down their proposals after backlash from powerful business groups and fears that state pension systems could see huge losses.

In both Kansas and Indiana, where the GOP has legislative supermajorities, bankers associations and state chambers of commerce criticized the strongest versions of anti-ESG legislation currently under consideration as anti-free market.

In Kansas, their opposition prompted a Senate committee’s chair to drop the toughest version of its bill — applying anti-ESG rules to firms handling private investments — before hearings began this week. He also canceled a Thursday discussion of a milder version of an anti-ESG bill after the head of the state pension system for teachers and government workers warned that it could see $3.6 billion in losses over 10 years if the bill were passed….

“This is the underlying political nature of this,” said Bryan McGannon, acting CEO and managing director for US SIF: The Forum for Responsible and Sustainable Investment. “They really aren’t thinking about the consequences of the kind of the real world impacts of what this means in the financial system.”

About one-eighth of U.S. assets being professionally managed, or $8.4 trillion, are being managed in line with ESG principles, according a report in December from US SIF, which promotes sustainable investing.

At least seven states, including Oklahoma, Texas and West Virginia, have enacted anti-ESG laws in the past two years. GOP Govs. Ron DeSantis of Florida and Greg Gianforte of Montana also have moved to ensure their states’ funds aren’t invested using ESG principles.

Discussions about the responsibilities of managers handling private investments are also slowing ESG opposition efforts in Kansas:

Republican lawmakers pushing to prevent Kansas from investing its funds using socially and environmentally conscious principles disagree about also imposing rules for investment managers handling private funds, complicating their efforts to thwart what they see as “woke” investing.

Committees in the Kansas House and Senate this week approved competing versions of anti-ESG legislation, and the two chambers could debate them as early as next week. ESG stands for environmental, social and governance and those considerations have become more prominent in investing in recent years, sparking a nationwide backlash from conservative Republicans.

The Kansas Senate’s version of the anti-ESG measure would require private money managers to get their clients’ written consent before investing their funds along ESG principles. The House bill contains no such provision.

The issue of requiring managers of private funds to disclose their ESG activities to clients or to get clients’ verbal or written consent to use them appears to be the last major sticking point among Republicans in the GOP-controlled Legislature. They’ve already backed off the toughest version of the anti-ESG legislation because of opposition from powerful business groups, and have rewritten both bills to prevent projected investment losses of $3.6 billion over 10 years for the pension fund for Kansas teachers and government workers.

In the spotlight

BlackRock CEO writes open letter to investors

BlackRock CEO Larry Fink is known for his annual open letters to the CEOs of corporations and for his letters to investors. This year, Fink sent only one letter— to investors. Among other things, Fink highlighted efforts at BlackRock that he says will make it easier for investors to vote their stock shares:

In recent years, I have written two letters each year – one on behalf of our clients to CEOs and the other to BlackRock shareholders. In November, on the anniversary of BlackRock introducing Voting Choice, I wrote to both CEOs and our clients to share my views on the transformative power of choice in proxy voting.

As we start 2023, it is clear to me that all of our stakeholders – BlackRock shareholders, clients, employees, partners, the communities where we operate, and the companies in which our clients are invested – are facing so many of the same issues. For that reason, this year, I am writing a single letter to investors….

We continue to innovate in a variety of areas to expand the choices we offer clients. Some of our clients have expressed interest in a more direct role in the stewardship of their capital, and we have sought to deliver solutions that enable them to vote their shares. As I wrote last year to clients and corporate CEOs, I believe that, if widely adopted, voting choice can enhance corporate governance by bringing new voices into shareholder democracy.

BlackRock has been at the forefront of this innovation for years, and we have seen other asset managers follow our lead and adopt similar efforts. Nearly half of our index equity assets under management are now eligible for Voting Choice. This includes all the public and private pension plan assets we manage in the U.S., as well as retirement plans serving more than 60 million people around the world. Clients representing over $500 billion in AUM have chosen to participate in Voting Choice to express their preferences.

When I first started writing letters to the CEOs of the companies in which our clients are invested, my entire focus was on stewardship and ensuring engagement that centers on creating long-term value for our clients. We set out to build the best global stewardship team in the industry – to engage with companies on corporate governance not just during proxy season, but year-round because we didn’t think that the industry’s reliance on just a few proxy advisors was appropriate. We believed that our clients expected us to make independent and well-informed decisions about what was in their best financial interest. And we still do.

Making these decisions requires understanding how companies are responding to evolving risks and opportunities. Changes in globalization, supply chains, geopolitics, inflation, monetary and fiscal policy, and climate all can impact a company’s ability to deliver durable value. Our stewardship team works to promote better investment performance for our clients, the asset owners. The team does that by understanding how a company is responding to these factors where financially material to the company’s business, and by advocating for sound governance and business practices. For many of our clients who have entrusted us with this important responsibility, BlackRock’s stewardship efforts are core to what they are seeking from us.

At the same time, we believe that adding more voices to corporate governance can further strengthen shareholder democracy.

Critics blame ESG for Silicon Valley Bank failure

Economy and Society is Ballotpedia’s weekly review of the developments in corporate activism; corporate political engagement; and the Environmental, Social, and Corporate Governance (ESG) trends and events that characterize the growing intersection between business and politics.

ESG Developments This Week

On Wall Street and in the private sector

Critics blame ESG for Silicon Valley Bank failure

California regulators shut down Silicon Valley Bank (SVB) on March 10, making it the second-largest bank failure in American history. In the wake of the collapse and the fear of contagion, some in politics and the media have criticized the bank’s loans to ESG-related companies and its in-house ESG policies. For example, Congressman James Comer (R-Ky.), the chairman of the House Oversight Committee, said SVB was “one of the most woke banks” in America:

GOP Rep. James Comer, the chairman of the House Oversight Committee, slammed Silicon Valley Bank, or SVB, as “one of the most woke banks” in the US.

“We see now coming out they were one of the most woke banks in their quest for the ESG-type policy and investing,” Comer said, referring to environmental, social, and governance policies.

“This could be a trend and there are consequences for bad Democrat policy,” the Kentucky congressman continued on Sunday’s episode of Fox News’ “Sunday Morning Futures.”

Comer did not explain which environmental sustainability-linked investments would have caused SVB’s failure, or how they would have done so.

The New York Post ran a piece on March 11 detailing some of the ESG programs in which the bank participated:

A head of risk management at Silicon Valley Bank spent considerable time spearheading multiple “woke” LGBTQ+ programs, including a “safe space” for coming-out stories, as the firm raced toward collapse.

Jay Ersapah, the boss of financial risk management at SVB’s UK branch, launched initiatives such as the company’s first month-long Pride campaign and a new blog emphasizing mental health awareness for LGBTQ+ youth.

“The phrase ‘You can’t be what you can’t see’ resonates with me,’” Ersapah was quoted as saying on the company website. …

In addition to instituting SVB’s first “safe space catch-up” — which encouraged employees to share their coming-out stories — and serving on LGBTQ+ panels around the world, Ersapah spent time over the last year serving as a director for diversity role models and volunteering as a mentor for migrant leaders. …

On Saturday, Home Depot co-founder Bernie Marcus insinuated that “woke” policies like the ones launched by Ersapah could have led to SVB’s dramatic failure. …

“These banks are badly run because everybody is focused on diversity and all of the woke issues and not concentrating on the one thing they should, which is, shareholder returns,” Marcus said.

“Instead of protecting the shareholders and their employees, they are more concerned about the social policies. And I think it’s probably a badly run bank.

“They’ve been there for a lot of years. It’s pathetic that so many people lost money that won’t get it back.”

Strive Asset Management CIO questions the role of ESG in SVB’s failure

Matt Cole, the chief investment officer and global head of fixed income at the post-ESG investment firm Strive Asset Management, pushed back against those who blamed ESG for SVB’s collapse. Cole wrote that “[t]here probably isn’t an investor with a more defined bearish view on the cost of Stakeholder Capitalism/ESG on equity returns than myself,” but he questioned the claims that ESG caused the bank’s failure:

The SVB failure had about as much to do with ESG/Stakeholder Capitalism as ESG/Stakeholder Capitalism has to do with making money – nothing….

SVB was caught up in the ESG game, but were about average with respect to the banking sector as a whole based on ESG ratings. The too big to fail banks are all significantly worse with respects to ESG. SVB stood out in taking stupid investment risks, period.

Companies that support ESG underperform, according to WSJ op-ed

The Wall Street Journal ran an op-ed by Mike Edelson and Andy Puzder on March 10 arguing that “corporations that remain neutral on social and political issues outperform companies that lean left.” The two argued the following:

Woke capitalism makes its way into financial markets through an ill-defined concept known as environmental, social and governance investing. Huge investment managers use their ownership of shares to pressure companies to jump on the ESG train. But while individual investors are free to support whatever causes they wish with their dollars, those who invest other peoples’ money have a fiduciary duty to focus solely on clients’ financial interests. Thus it’s important to know whether politically focused companies actually do produce superior financial results.

To answer this question, we used research from 2ndVote Analytics Inc., a company that scores U.S. large-cap and midcap companies on their social and political engagement on five-point scale. Analytics evaluates company data on six social/political issues—the environment, education, abortion, Second Amendment rights, other basic constitutional freedoms and support for a safe civil society—and also generates a composite score. Company scores, updated quarterly, range from 1 (most liberal) to 5 (most conservative), with 3 meaning neutral or unengaged.

On average, roughly a quarter (or 221) of the S&P 900 large/mid-cap companies studied scored 3—taking no political or social stance on any of these six issues—during the period from June 30, 2021 (when the data was first available), through Jan. 31, 2023. Of the remaining companies, the political tilt was strongly to the left. More than 59% scored liberal, and under 15% conservative (with only one company higher than 4).

We used a neutral score of 3 as a proxy for companies that focus on investors’ returns rather than activism. We then compared the performance of those neutral companies with the market (represented by the S&P 500 and Russell 1000) as well as major ESG-registered funds. The point is to demonstrate how well a portfolio of business-focused politically neutral companies performs compared with those potentially distracted by political issues.

In making this comparison, we used a third-party index-calculation agent and market-value weighting in a manner similar to the S&P 500 and Russell 1000 benchmarks (total returns). The ESG products’ returns include the effect of fees; the neutral-universe and benchmark indexes don’t. The analysis covers the full period for which company scores were available, including the market runup in the last half of 2021, the 2022 bear market and the early-2023 rebound.

The results are compelling. The market was down overall, by 1.8% for the S&P 500 and 3.2% for the Russell 1000. ESG funds performed worse, with most losing 2.5% to 6.3%. A simple index composed of only neutral companies gained 2.9%, significantly outperforming both broad-market and ESG indexes in up and down markets. Notably, the benchmarks include the outperforming neutral companies—indicating that the politically active companies further underperformed. …

For a longer view, we compared the performance of the more than 200 companies that remained neutral over our data period with the benchmarks over the past 10 years. The neutral portfolio’s cumulative return (334%) outgained the market (230%); the results were substantially more compelling using equal-weighted returns as an alternative method.

One interesting result is the point at which performance notably begins deviating—2017-18, around the time companies (and perhaps their profits and returns) began feeling pressure from the power and influence of supposedly passive asset managers such as BlackRock, State Street and Vanguard, as those behemoths’ push into ESG intensified.

In the states

Harvard Law summarizes the last year of state-level ESG engagement 

The Harvard Law School Forum on Corporate Governance published a summary article on March 11 detailing the rise in state-level support for and opposition against ESG over the last year:

When it comes to ESG in the United States, among the most dramatic developments is an ideological battle unfolding at the state level, pitting liberal-leaning state governments that have embraced ESG-focused investing against conservative-led states that would seek to exclude it. …

[O] the past year, the picture has shifted. States have stepped up their lawmaking, defining the future of the ESG-related regulatory environment with widely divergent approaches.

These measures focus primarily on the investment of state-level public retirement system assets. New varietals of these and other ESG-focused laws are becoming regular events. Individually and collectively, the developments are further fracturing an already complicated landscape for financial services companies, including private investment managers that invest money on behalf of state pensions. Meanwhile multistate initiatives are taking aim at individual asset managers, banks and proxy advisory services perceived to be driving ESG growth.  In at least one state, banks are fighting back.

Much attention has focused on so-called “anti-ESG measures”—those prohibiting the consideration of ESG factors when investing state retirement funds or targeting companies that “boycott” industries such as fossil fuel or firearms companies—and the organizations behind them. A smaller but significant number of “pro-ESG” measures seek different outcomes and are gaining traction.  Other measures perhaps best described as “ESG-neutral” have led to or appear to be leading to pro- or anti-ESG legislative outcomes. …

More extreme measures on both sides, anti- and pro-ESG, have prompted some observers to sound the alarm that the United States may be straying from the fundamental purpose of ESG factors—as a valuation metric to gauge corporate success.

Whether, how long and to what extent the shift in ESG regulatory power remains with the states is yet to be seen. For now, in the United States, the term “ESG” is remarkable in its political divide.

Around the world

Sweden requires ESG investing for pension funds

Bloomberg reported on March 13 that Sweden is allocating over one-tenth of its pension funds to ESG investments:

Sweden is inviting international asset managers to help allocate 1 trillion kronor ($90 billion) of pension savings, but says it won’t accept applications from firms that don’t incorporate ESG into their strategies.

The new framework will replace a system tainted by an embezzlement scandal that infuriated Swedish taxpayers and triggered calls for a more robust setup. The upshot is that only investment firms that integrate environmental, social and governance goals into their work need apply, according to the Office of the Swedish Fund Selection Agency, which is overseeing the process.

“Unlike in the current system, there will be a requirement that the manager systematically integrates sustainability aspects into its operations,” Erik Fransson, executive director of the office, said in an interview. 

The move underscores the wildly divergent approaches different jurisdictions are taking as they figure out how big a role ESG should play in mainstream investing. In Europe, ESG is currently being hardwired into financial regulations. In the US, lawmakers just voted to block the pension industry from taking ESG risks into account. …

Sweden is now enshrining its ESG requirements for pension managers into law, under which investment firms must show an “exemplary approach to sustainability through responsible investment and responsible ownership.”

International investment firms interested in applying for the pool of pension savings, which represents just over 10% of Sweden’s total public retirement assets, need to be able to document their ESG claims. That includes showing they have processes in place to prevent portfolio funds being linked to violations of the United Nations’ Global Compact, the OECD’s guidelines for multinational corporations, or the UN’s guiding principles for human rights, according to a draft provided by the Office of the Swedish Fund Selection Agency.

And firms will only be allowed to offer investment products that are registered as ESG fund classes under Europe’s Sustainable Finance Disclosure Regulation, namely Articles 8 and 9, the draft shows. The first selection process is set to take place in the second quarter, and Sweden expects to choose a total of 150 funds.

Congress rejects ESG in retirement plans

Economy and Society is Ballotpedia’s weekly review of the developments in corporate activism; corporate political engagement; and the Environmental, Social, and Corporate Governance (ESG) trends and events that characterize the growing intersection between business and politics.

ESG Developments This Week

In Washington, D.C.

Congress rejects ESG in retirement plans

The House of Representatives voted on February 28 to pass a Congressional Review Act (CRA) resolution to rescind the Biden Labor Department rule permitting the use of ESG investing in ERISA-governed retirement plans. Republicans then used their temporary majority and the support of two Democrats to pass the bill in the Senate on March 1:

A Republican bill to prevent pension fund managers from basing investment decisions on factors like climate change cleared Congress on Wednesday, setting up a confrontation with President Joe Biden, who is expected to veto the measure.

The U.S. Senate voted 50-46 to adopt a resolution to overturn a Labor Department rule making it easier for fund managers to consider environmental, social and corporate governance, or ESG, issues for investments and shareholder rights decisions, such as through proxy voting.

The outcome highlighted Republicans’ willingness to oppose their traditional allies in Wall Street and corporate America that adopt what party lawmakers characterize as “woke”, liberal practices.

Two Democratic senators, Joe Manchin and Jon Tester, voted with Republicans. Both face reelection in Republican-leaning states in 2024. The Republican-controlled House of Representatives passed the bill on Tuesday. …

Republicans claim the rule, which covers plans that collectively invest $12 trillion on behalf of 150 million Americans, would politicize investing by allowing plan managers to pursue liberal causes, which they say would hurt performance.

Biden promises to veto resolution, maintain ESG rule

President Biden promised to veto the CRA resolution, which will mark the first veto of his presidency. The Wall Street Journal Editorial Board called the veto announcement revealing:

The Biden rule reversed a Trump-era clarification of the 1974 Employee Retirement Income Security Act (Erisa), which required retirement plan fiduciaries to consider solely “pecuniary” factors that have a “material effect” on investment risk or return. Erisa is intended to prevent retirement funds from using savings for their own purposes.

The Biden rule protects fiduciaries from lawsuits for considering ESG factors that could be “relevant” to investment performance such as a company’s greenhouse-gas emissions or workforce diversity. This broad standard would essentially let managers invest retirement savings however they want.

The rule would also augment the power of proxy advisory duopolists Glass Lewis and Institutional Shareholder Services (ISS) by directing fiduciaries to “rely on efficient structures” such as “proxy advisors/managers that act on behalf of large aggregates of investors.” ISS and Glass Lewis are voting force multipliers on ESG shareholder resolutions. The rule would drive more savings into ESG funds that typically charge higher fees by letting retirement sponsors offer them as default options in 401(k) plans. Workers can opt out of default plans but usually don’t. Why isn’t Mr. Biden lambasting ESG funds for charging “junk fees”? …

Mr. Biden claimed in a veto threat that returning to the Trump rule “would be interfering with the market,” supposedly because asset managers want free rein to consider ESG factors. Sorry, what’s good for BlackRock isn’t always good for workers, and protecting retirement savings isn’t interfering in markets.

Senator Cruz explains the Senate’s pushback against the Labor Department rule

After the Senate vote on March 1, Texas Republican Ted Cruz went on Fox News to explain why he and 49 other senators opposed the Labor Department rule and why he believes ESG poses a threat to retirement savings and capital markets:

Sen. Ted Cruz, R-Texas, joined “Varney & Co” on Thursday to discuss what impact the Biden administration’s “politicization” efforts could have on Americans’ investments. 

“This is your retirement that Joe Biden has said his politics matters more than your retirement, and he’s perfectly happy for you to take the hit,” Cruz said. 

GOP senators discussed the legislation during a press conference Wednesday, saying the Biden administration’s move with the ESG rule had “a certain irony,” given the administration’s rhetoric of working for the American public. 

“And there’s a certain irony here, since [the Biden administration] always billed themselves as actually caring about the person who’s struggling. People are going to struggle more because of this rule,” Sen. Bill Cassidy, R-La., said during the press conference.

“This weaponizes their retirement accounts against both their future, but also their present,” he continued.

Cruz said Thursday that the ramifications on Americans’ investment accounts would be detrimental, putting politics over helping Americans.

“‘Global ESG funds have underperformed the broader market in the past five years, returning an average of 6.3% a year, compared with 8.9% for broader funds, which means an investor who put $10,000 into an average global ESG fund in 2017 would have $13,573 today, roughly $1,720 less than if they’d put it into a non-ESG portfolio,'” Cruz said, quoting an article from Bloomberg. …

“The Senate stood together with a bipartisan vote yesterday and reversed this and said you ought to be able to save for your retirement without politicians impacting and hurting your savings,” Cruz said. 

Cruz claimed that the proposed ESG rule highlights a larger trend of politicization within the Biden administration, specifically the politicization of the Justice Department.

CNBC blames wealthy conservative donors for the pushback against ESG

CNBC published a piece on March 1 arguing that wealthy GOP donors were responsible for driving the federal and state pushback against ESG investing:

More than a half dozen conservative groups have helped to drive the criticism of Wall Street’s ESG investing methods — and some have little-known ties to longtime conservative donors or lawyers who have aided Trump himself.

Members of the State Financial Officers Foundations are all powerful state Republican officials, many of whom have scrutinized ESG practices or pulled back billions of dollars from investing firms. They include Oaks, who last year announced he would move $100 million in state funds from BlackRock to other money managers, and Florida’s GOP Chief Financial Officer Jimmy Patronis, who in December said the state treasury would pull out $2 billion in assets previously managed by BlackRock.

A representative for the State Financial Officers Foundation did not return a request for comment.

Behind the scenes, a larger network of conservative interest groups is helping to fund the organization’s events or send representatives to attend.

Conservative leaning groups including the 1792 Exchange, the Heritage Foundation, Consumers’ Research, American Legislative Exchange Council and Mercatus Center, were among the attendees of the private February meeting of the State Financial Officers Foundation in New Orleans, according to the attendee list reviewed by CNBC.

Some of those organizations participated in a similar State Financial Officers Foundation gathering in Washington D.C. in November 2022, according to an agenda. The meeting in D.C. focused, in part, on pushing back on ESG investment standards. The foundation announced at the time a targeted ESG campaign that features a website and an initial six-figure digital marketing effort. …

A growing list of Republican donors, including other Trump allies, along with a massive donor advisory fund have helped to provide funding for the anti-ESG fight. …

Marble Freedom Trust is led by former Trump judicial advisor Leonard Leo, who helped to coordinate campaigns to confirm the former president’s Supreme Court nominees. The group received a $1.6 billion donation in 2021 from Barre Seid, an electronics manufacturing mogul, according to The New York Times.

In the states

Idaho House votes three times against ESG

The Idaho House of Representatives passed three bills on March 2 intended to restrict the use of ESG investments:

House lawmakers Thursday gave the green light to a trio of bills allowing the state to boycott businesses and financial institutions which follow environmental, social and governance standards, known as ESG.

The standards are guidelines that companies adopt for the way they conduct themselves, or who they choose to do business with. In the financial sector, the standards can guide decisions on where investments may or may not be made.

The bills sailed through on a wide margin, with Democrats and a handful of Republicans voting no on each. Rep. Barbara Ehardt (R-Idaho Falls) sponsored two and fought back against arguments that the legislation allows the state to pick winners and losers.

“We are not telling businesses how to run their business,” she said on the house floor. “There’s nothing remotely in here that says that, that would be a misdirection, a false narrative.”

Nationwide, Republicans have attacked these standards as ‘woke ideology.’ Ehardt says the state needs to protect its industries targeted by ESG reforms. …

The three bills now head to the Senate.

On Wall Street and in the private sector

Journalist alleges continued anti-Israel bias at Morningstar/Sustainalytics

The Washington Free Beacon published an article by senior writer Adam Kredo last month arguing that the financial company Morningstar is not living up to a promise it made to purge anti-Israel bias from its Sustainalytics ESG ratings service. Morningstar has been under increasing pressure from state attorneys general regarding this matter:

The financial ratings giant Morningstar has failed to follow through on promises to eradicate anti-Israel bias from its corporate ratings system and is still blacklisting companies that work with Israel.

Morningstar subsidiary Sustainalytics—which rates companies based on Environmental, Social, and Corporate (ESG) governance guidelines—placed at least two companies on its investment watchlist for their work with Israel’s security sector: Motorola Solutions and Elbit Systems, both of which provide counterterrorism surveillance technology that helps the Jewish state combat terrorism, an issue that is taking on renewed importance as Israel faces a new wave of Palestinian violence.

Sustainalytics has faced accusations that it promotes the anti-Semitic Boycott, Divestment, and Sanctions (BDS) movement, which wages economic warfare on Israel, by downgrading companies that work with Israel. Media attention on the issue, including a series of reports by the Washington Free Beacon, forced Morningstar to announce a sweeping number of reforms that it claimed would combat anti-Israel bias. But several months after this announcement, Middle East experts and former U.S. officials are concerned that Sustainalytics is penalizing companies for the work they do to prevent terrorism in Israel. Sustainalytics’s ratings serve as a guide to investors concerned about social issues, and any company placed on its watchlist can suffer as a result….

While Morningstar said last year that it initiated a company-wide process to eradicate anti-Israel bias, Motorola Solutions and Elbit Systems remain on the watchlist for their work with Israel’s security sector, according to an analysis reviewed by the Free Beacon that summarized Morningstar and Sustainalystics’s updated ratings….

“Morningstar says Motorola has a human rights problem because its technology is used to track Palestinian movements. What the company leaves out is that the technology is tracking the movement of Palestinian terrorists attempting to infiltrate Jewish areas, like the terrorists who murdered the Fogel family back in 2011,” said Richard Goldberg, a former White House National Security Council official who serves as a senior adviser at the Foundation for Defense of Democracies think tank. “Morningstar’s position is that Motorola should withdraw its operations and let terrorists stab more Jewish children to death.”

Goldberg, who was one of the first analysts to expose alleged anti-Israel bias at the company, said Sustainalytics continues to bolster the BDS movement as it tries to penalize companies for working alongside Israel. A Morningstar spokeswoman would not answer Free Beacon questions about why these two companies remain flagged.