Competing Congressional Bills Seek to Amend ERISA to Address ESG

House Republicans recently introduced the Ensuring Sound Guidance Act (H.R. 4237), which would limit ERISA fiduciaries' ability to consider environmental, social, and governance (ESG) factors in their investment decisions. In particular, the bill would amend ERISA to prohibit ERISA fiduciaries from considering non-pecuniary factors when making investment decisions, except when investment alternatives are indistinguishable with respect to risk and return. In the latter "tiebreaker" scenario, the bill requires a fiduciary to document why an investment decision could not have been made based on pecuniary factors alone, a comparison of investment alternatives on plan diversification, liquidity, and portfolio return, and how the selected non-pecuniary factors are consistent with plan participant's interests. The bill also prohibits fiduciaries from selecting or retaining as default investment alternatives for individual account plans investments with objectives, goals, or principal investment strategies that include, consider, or indicate the use of one or more non-pecuniary factors. 

The bill would impose similar restrictions on brokers, dealers, and investment advisors through amendments to the Investment Advisors Act of 1940 and calls for several government studies, including one on the effect of ESG factors on funding of state and local pension plans. This bill is a revved-up version of H.R. 7151, introduced in March 2022, which did not make its way out of legislative committee. 

Earlier this year, Democratic Senators and Representatives introduced the Freedom to Invest in a Sustainable Future Act (S. 523 and H.R. 1119) in both houses of Congress, which would amend ERISA to permit ERISA fiduciaries to consider ESG or similar factors when carrying out an investment decision, strategy, or objective, or other fiduciary acts. The bills would also allow ERISA fiduciaries to consider ESG or similar factors as a tiebreaker when competing investments can reasonably be expected to serve the plan's economic interests equally well with respect to expected return and risk over the appropriate time horizon. In contrast to the GOP bill, these Democratic bills permit as default investments those selected taking into consideration ESG factors and prohibit the imposition of greater documentation requirements for such investments. 

All three bills remain before their respective House and Senate committees. The Democrats' proposal aligns with the current regulatory language published last November by the Employee Benefit Security Administration (EBSA), which is the subject of court challenges in Texas and Wisconsin and was unsuccessfully challenged by Congress under the Congressional Review Act, resulting in President Biden's first legislative veto. 

SOPRA and the REINS Act Pass the House  

As previously reported, the Separation of Powers Restoration Act of 2023 (SOPRA), which aims to amend the Administrative Procedures Act (APA) "to clarify the nature of judicial review of agency interpretations of statutory and regulatory provisions" and legislatively override Chevron v. Natural Resources Defense Council, 467 U.S. 837 (1984), made it out of the House Judiciary Committee. The Regulations from the Executive in Need of Scrutiny Act of 2023 (REINS Act) made it to the House floor as well. Like SOPRA, the REINS Act targets federal rulemaking, but would do so by amending the Congressional Rules Act to require affirmative congressional approval of a "major rule," including an agency rule with an annual effect on the economy of at least $100 million, before such a rule can take effect. Both bills passed on partisan votes — 219 Republican "yeas" to 210 Democratic "nays" for SOPRA, and 220 Republican "yeas" to 210 Democratic "nays" for the REINS Act — but are unlikely to gain traction in the Democrat-controlled Senate. 

Chevron Also Gets Attention from the Congressional Research Service

Chevron deference has grabbed the attention of the Congressional Research Service (CRS), which recently issued this report on Chevron deference in the Courts of Appeals. Potentially adding fuel to SOPRA's fire, the report concludes that "[t]he Supreme Court applies Chevron differently from the court of appeals, the courts of appeals apply Chevron differently from one another, and the courts of appeals treat different agencies differently in applying Chevron. Congress likely has the authority to address this patchwork application of Chevron if it found it appropriate, or even to eliminate Chevron altogether." That said, the report also presents a notable caveat:

Eliminating Chevron may not produce uniform interpretations of federal statutes across the federal courts, however. If the lower courts were no longer required by Chevron to defer to some agency interpretations, they would be more likely to rely on their own interpretations of federal law, and different courts may end up differing on their interpretations of the same provisions.

CRS is a nonpartisan federal legislative branch agency located within the Library of Congress and, by law, works exclusively for Congress. CRS staff are only available to assist congressional members, committees, and staff. In this case (as in most) it is unclear who requested the Chevron report.

Upcoming Speaking Engagements and Events

Joanne Roskey and Anthony Shelley will present, "Discussion with EBSA: Enforcement & Regulatory Priorities Impacting Health Plans," at the BCBS 2023 Law, Audit, Compliance & Ethics Conference on August 9, 2023.

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