Today: 21-04-2024

Republican-Led States Challenge Court Decision Upholding Biden's ESG Investing Rule

On October 26, a consortium of Republican-led U.S. states announced their intent to challenge a federal judge's decision in Texas that dismissed their objection to a rule issued by President Joe Biden's administration. The contested regulation permits employee retirement plans to factor in environmental, social, and governance (ESG) considerations in investment choices.

The coalition of 26 states, spearheaded by Texas and Utah, formally filed a notice of appeal in the federal court situated in Amarillo. The legal action stems from U.S. District Judge Matthew Kacsmaryk's dismissal of their lawsuit on September 21. Notably, Liberty Energy Inc, an oil drilling company, and a representative from an oil and gas trade group have joined the appeal. The U.S. Department of Justice has refrained from offering comments on the matter.

Expressing disappointment, Utah Attorney General Sean Reyes asserted that the court's ruling had surpassed the government's jurisdiction. Reyes emphasized the coalition's anticipation of a successful appeal. The case will now be presented before the 5th U.S. Circuit Court of Appeals, based in New Orleans, recognized for its conservative composition, with 12 out of 16 judges appointed by Republican presidents.

The dispute revolves around a rule implemented by the U.S. Labor Department in the previous year, reversing a 2020 regulation established during the tenure of former Republican President Donald Trump. The latter had constrained ESG investing by retirement plans collectively managing $12 trillion for over 150 million individuals. Despite a Republican-sponsored resolution in March to annul the rule, President Biden, a Democrat, exercised his veto power.

Environmental, social, and governance (ESG) factors include considerations such as a company's policies related to climate and the environment, diversity practices, and corporate governance, including executive compensation. Some Republicans criticize ESG as emblematic of "woke" capitalism, asserting that it prioritizes liberal objectives over investor returns.

The legal contention hinges on the Employee Retirement Income Security Act of 1974 (ERISA), which mandates retirement plan administrators to act exclusively in the interest of participants. The states argue in their lawsuit that the rule breaches ERISA by permitting plans to consider non-financial factors, contending that this jeopardizes the retirement savings of millions and could deplete state tax revenue.

In his decision affirming the rule, Judge Kacsmaryk clarified that it unequivocally prioritizes financial considerations, with no mandate or encouragement for retirement plans to weigh non-financial factors like climate change and social or labor issues. This distinction aims to underscore the rule's commitment to placing financial factors at the forefront of investment decisions. Reporting by Daniel Wiessner in Albany, New York, and Nate Raymond in Boston. Edited by Will Dunham and Alexia Garamfalvi. Our Standards: The Thomson Reuters Trust Principles. For licensing rights, click here. Dan Wiessner (@danwiessner) specializes in labor, employment, and immigration law reporting, encompassing litigation and policy developments. Contact him at This email address is being protected from spambots. You need JavaScript enabled to view it..

In conclusion, Judge Kacsmaryk's decision to uphold the rule emphasized the continued precedence of financial factors in the investment decisions of retirement plans. The ruling explicitly stated that there is no requirement or encouragement for these plans to consider non-financial factors such as climate change and social or labor issues. This distinction underscores the rule's commitment to maintaining a primary focus on financial considerations. As the legal proceedings move forward, the implications of this decision will likely resonate in the ongoing debate over the role of non-financial factors, particularly in the realm of ESG investing. The reporting team, led by Daniel Wiessner and Nate Raymond, continues to follow developments in labor, employment, and immigration law, providing insights into litigation and policy shaping. For more details and licensing information, interested parties can refer to Thomson Reuters Trust Principles.