House GOP retirement fund bill takes aim at ESG investing

Key Points
  • House Republicans are continuing their effort to target so-called "woke" investing.
  • Rep. Andy Barr, R-Ky., will introduce a bill that would target funds that consider environmental, social and governance issues, known as ESG.
  • The bill will likely be part of a wider GOP effort to rein in ESG investment.
Republicans raise concerns over ESG investment funds
Republicans raise concerns over ESG investment funds

House Republicans are continuing their attempt to pump the brakes on so-called "woke" investing with new legislation that could place limits on financial advisors and retirement funds.

Rep. Andy Barr, R-Ky., will introduce a bill Wednesday that would target funds that consider environmental, social and governance issues, known as ESG. Barr's measure would update the Employee Retirement Income Security Act to require retirement funds to focus only on maximizing profits, limiting the ability to invest in ESG options.

Retail investors would also need to be notified if their financial advisors invested their funds in an ESG. In addition, advisors would need to disclose the difference in fees and performance between ESG funds and a similar index. Proponents say ESG investing is intended to promote the social good, although critics say it hurts investors.

"Environmental, social and governance investing has become a cancer and a fraud within our capital markets, steering retail investors, sometimes unwittingly, into lower-performing, less diversified and higher-fee funds," Barr told CNBC.

Rep. Andy Barr, R-Ky., center, Speaker of the House Kevin McCarthy, R-Calif., right, and Rep. Bill Huizenga, R-Mich., attend a signing ceremony for a resolution that disapproves of a rule related to the "Prudence and Loyalty in Selecting Plan Investments and Exercising Shareholder Rights, in the U.S. Capitol on Thursday, March 9, 2023.
Tom Williams | CQ-Roll Call, Inc. | Getty Images

Barr's bill doesn't specifically block funds from being invested in ESG options. Rather, his goal is to ensure investors' returns are prioritized ahead of social and environmental goals. Those who want to invest in ESGs would be able to do so but they would need to provide consent in writing.

Republicans have already sought to limit investments in ESG. Earlier this year, both chambers of Congress voted to roll back a Biden administration rule allowing fiduciaries to consider ESG factors when they make investment decisions. Three Democrats — Rep. Jared Golden and Sens. Joe Manchin and Jon Tester — supported the rollback. President Joe Biden ultimately vetoed the bill, and an attempt to override it fell short. Similar legislation Barr previously introduced was sponsored by Republicans but not Democrats.

While Barr's broader ESG bill is unlikely to make it to Biden's desk or even to the Senate, it could be a part of a larger effort Republicans on the House Financial Services Committee will make to highlight concerns around ESG investing in July. Barr, who's a senior member of the committee, said several hearings are planned on the topic, as well as a package of bills.

"Whether you are a Republican, a moderate or a Democrat, or conservative or liberal, we're trying to depoliticize investing in America," Barr said. "Your 401(k), your 529, your investment account should work for you. It should deliver returns. It shouldn't be a mandatory political statement."

The federal push comes as several Republican-controlled states have implemented or are considering similar limits to ESG funding. Those jurisdictions includes Barr's home state of Kentucky, where Democratic Gov. Andy Beshear signed one of the strongest anti-ESG laws, mandating the state's fiduciaries to maximize profit.

Rep. Brad Sherman, a California Democrat on the House Financial Services Committee, said the federal government shouldn't interfere with how states want to invest in various funds.

"I believe in democracy. States get to do what states want to do," he said.