After months of pushback from the states, the fight over “environmental, social and corporate governance” investing is shifting to Washington, where Congress is angling to block a new ruling from the Department of Labor that opens the door to more money managers making investment decisions based on companies’ positions on climate change and other social justice issues.

The ruling by the labor department, announced in November, unraveled restrictions laid down by the Trump administration in 2020 that prevented investment managers who control trillions of dollars in retirement funds held in 401(k)s and Individual Retirement Accounts, among others, from using ESG metrics to decide where to invest. Under the previous rules, these fiduciaries were required to make investment decisions that generate the highest returns for investors.

With the stroke of a pen and in the name of preventing climate change, though, President Biden changed that. The new rule “clarifies that retirement plan fiduciaries can take into account the potential financial benefits of investing in companies committed to positive environmental, social and governance actions as they help plan participants make the most of their retirement benefits,” the secretary of labor, Marty Walsh, said.

“Removing the prior administration’s restrictions on plan fiduciaries will help America’s workers and their families as they save for a secure retirement,” he added.

Now, some in Congress want to force the department to roll back its ruling. The entirety of the GOP caucus in the Senate along with Senator Manchin, a Democrat of West Virginia, introduced legislation Wednesday to block the new rule, stating that it unnecessarily politicizes the investment accounts of some 152 million Americans without their knowledge or support. Companion legislation is expected to be introduced in the House this week.

“President Biden is jeopardizing retirement savings for millions of Americans for a political agenda,” Indiana’s Republican senator, Mike Braun, who is leading the charge in the Senate, said. “In a time when Americans’ 401(k)s have already taken such a hit due to market downturns and record high inflation, the last thing we should do is encourage fiduciaries to make decisions with a lower rate of return for purely ideological reasons.”

Passage of the resolution, a Congressional Review Act, would allow Congress to overrule the administration and force the Department of Labor to backtrack on the ruling.

The pivot toward ESG investing — “woke investing,” according to its critics — began in Europe but has been gaining significant traction in America in recent years. A report last year by the PwC accounting firm projected that the amount of money invested in ESG funds is likely to grow to $10.5 trillion by 2026 from the 2021 level of $4.5 trillion.

In many cases, the funds that lean toward ESG investing fared worse in terms of returns than those that did not take social justice issues into consideration. A recent report in the Harvard Business Review also noted many of the companies touted as enlightened in their management priorities actually had worse compliance records on labor and environmental rules than companies that were not. 

“Funds investing in companies that publicly embrace ESG sacrifice financial returns without gaining much, if anything, in terms of actually furthering ESG interests,” the report concluded.

There is also evidence that the agencies that rate companies based on their progressive bona fides are using those ratings to penalize companies that do business with the state of Israel.

A report by the conservative Foundation for the Defense of Democracies found that a European subsidiary of Morningstar, the mutual fund ratings company, red-flagged Chicago-based Motorola Solutions because of its sale of counter-terrorism equipment to the state of Israel. The company is said to have tarred dozens of Israeli companies in a similar fashion.

“Trillions of dollars are moving through ESG-related assets under management,” the report said. “Attempting to redirect those capital flows away from Israel-connected companies constitutes the largest economic attack on the Jewish state in 75 years.”