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Politics of Biden's First Veto 

March 27, 2023

Last week, President Biden issued the first veto of his Presidency. The veto blocks a repeal of a Department of Labor rule that allows, but doesn’t require, ERISA retirement fund managers to consider environmental, social, and governance (ESG) factors when investing.

How did we get here?

• November 2022: The Department of Labor issued a rule that would remove barriers to considering ESG factors in ERISA plan investments.
• February 7, 2023: Rep. Andy Barr (R-KY) introduces a joint Congressional Review Act bill with Sen. Mike Braun (R-IN) to nullify the rule and prevent future rules from taking effect. The Congressional Review Act allows the Senate to repeal recently finalized rules with a simple majority vote, rather than overcoming a filibuster with 60 votes.
• February 28, 2023: The resolution passed the House 216 - 204
• March 1, 2023: The Senate passed the vote 50-46, with Sen. Joe Manchin (D-WV) and Sen. Jon Tester (D-MT) joining their Republican colleagues to do so.
• March 20, 2023: President Biden vetos the legislation that he believes would have jeopardized the retirement savings of public employees across the country.
• March 20, 2023: House Republicans prepare to override the veto with a vote. Civics 101 Reminder: A veto override requires support from two-thirds of members in both chambers of Congress.
• March 23, 2023: House Republicans fail at their attempt to override the veto by a two-thirds majority (219-200), and so the veto stands.

Why this matters:

• For Republicans: ESG has become a hot-button issue for them in recent years. Their definition of ESG as the practice of “Woke Capitalism” threatens their view of traditional business practices.
• For Democrats: This bill was a tough vote. Manchin and Tester are both vulnerable Democrats in red states who are both facing a tough race for re-election next fall. By having this vote, it put them on record bucking their party.

The Big Picture: The veto by President Biden and the attempted override of the veto by House Republicans highlights the divisions between the two sides on ESG.

Contact Chelsea Neil at cneil@crefc.org with questions about this story. 

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CREFC Capital Markets Update Week of 3/27

March 27, 2023 

Spreads Continue to Widen as Issuance Remains Quiet

• Private-Label CMBS and CRE CLOs. Trouble in the regional banking sector over the last month has shifted to increased scrutiny of banks’ CRE loan exposure. The combination has led to significant spread volatility over the previous three weeks, adding to the challenges of bringing new transactions to market. Year-to-date private-label CMBS and CRE CLO issuance stood at $6.2 billion, well behind last year’s tally at this time of $43.8 billion.
• Wells Fargo, Morgan Stanley, Citigroup, and Bank of America began marketing a $1 billion conduit offering backed entirely by five-year loans (BANKS 2023-FYR1). According to Commercial Mortgage Alert, the whisper pricing on the super senior bonds was 200 bps over SOFR swaps – or 70 bps wider than a similar five-year deal priced on February 10 (FIVE 2023-V1). A $657 million more traditional conduit offering began pre-marketing last week, with the banks planning on announcing the transaction early this week.
• Treasury yields extended their declines last week, with the 10-year yield down 5 bps to end the week at 3.38%. The 10-year Treasury yield is now down 58 bps over the past three weeks. The two-year Treasury yield was down 7 bps on the week to 3.77% and is down 109 bps over the last three weeks – the largest three-week decline since 1987. The 10Y-2Y spread is now 39 bps, the narrowest since October. CME 1M Term SOFR was up 5 bps on the week to 4.81%.
• Benchmark CMBS spreads were wider at the top of the stack, driven by continued risk-off sentiment in the broader markets. LCF AAA conduit bond spreads ended the week up 10 bps to 170, with AA spreads flat at 275 and A up 25 bps to 450. BBB- spreads were unchanged at 950. SASB AAA spreads were up 5 bps to 190 – 275.
• Agency CMBS. Agency issuance totaled $3.4 billion, consisting primarily of a $1.2 billion Freddie K transaction and $1.6 billion of Fannie DUS. The Freddie K-Deal was postponed from the prior week due to market conditions. Agency issuance for 2023 now stands at $23.4 billion, 44% lower than the $41.9 billion for the same period last year.

Please contact Raj Aidasani (raidasani@crefc.org) with questions. 

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IPCC Climate Doomsday Report 

March 27, 2023

On March 20, the United Nation’s Intergovernmental Panel on Climate Change (IPCC) released its sixth and final report. U.N. Secretary-General António Guterres said that “the climate time-bomb is ticking” and, as reported by Axios, urged industrialized countries to move up their net zero emissions targets from 2050 to "as close as possible to 2040."

Why it matters: The report states that little time is left to counter the effects of climate change: “There is a rapidly closing window of opportunity to secure a liveable and sustainable future for all.”

The report also notes the limits of adaptation, emphasizing the need for immediate greenhouse gas emissions reduction:

“Adaptation options that are feasible and effective today will become constrained and less effective with increasing global warming. With increasing global warming, losses and damages will increase and additional human and natural systems will reach adaptation limits.”

The role of finance: The IPCC highlights the role that the finance and tech sectors need to play in promoting both adaptation and mitigation measures. However, it also seems to indirectly acknowledge some of the politics that are throwing up barriers to climate investment. (CREFC has reported on the anti-ESG movement in the U.S. in previous Policy and Capital Markets Briefings.)

“Finance, technology and international cooperation are critical enablers for accelerated climate action. If climate goals are to be achieved, both adaptation and mitigation financing would need to increase many-fold. There is sufficient global capital to close the global investment gaps but there are barriers to redirect capital to climate action.”

The intrigue: As reported by Axios later in the week, the crafting of the report’s Summary, which is critically important for policymakers and painstakingly reviewed by all participants, highlighted the many differences that IPCC members needed to resolve. For example, Saudi Arabia, China and India tried several times to downplay references to fossil fuels as the main cause of global warming.

Additionally, as the negotiations continued beyond the expected end date, many developing country representatives had to return home. According to Axios, no representatives from Africa and South America were in the room when the report was finally approved.

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