A federal judge has upheld a Biden administration rule that lifts barriers to considering environmental, social and governance factors when employers are selecting 401(k) plans. The decision came after 25 Republican state attorneys general sued the Department of Labor earlier this year.
The rule allows fiduciaries to consider ESG when they select retirement funds and exercise shareholder rights, such as proxy voting. The attorneys general said in their suit that the Labor Department had exceeded its authority with the rule.
The DOL rule followed President Biden’s May 2021 executive order directing the federal government to identify and assess policies to protect the life savings and pensions of America’s workers and families from threats of climate-related financial risk.
The judgment is a “setback for state attorneys general that have waged a months-long war against ESG retirement investing in the wake of the DOL proposal,” Bloomberg Law reported.
The challenge was spearheaded by Texas Attorney General Ken Paxton (R) and Utah Attorney General Sean Reyes (R). The attorneys general maintained that fiduciaries, by considering nonfinancial factors when administering trust assets, may “focus on advancing an ESG agenda instead of achieving long-term financial stability for their clients,” which could be “detrimental to the retirement accounts of hardworking Americans.”
In a 14-page opinion, Judge Matthew Kacsmaryk of the US District Court for the Northern District of Texas said that “[t]he proposed language ‘was not intended to create an effective or de facto regulatory mandate’ or ‘an overarching regulatory bias in favor of ESG strategies.”
The decision likely will be appealed to a New Orleans-based federal appeals court, according to Reuters.
See additional ESG-related coverage from McKnight’s here.
