A federal judge in Amarillo, Texas, again rejected arguments made by 26 attorneys general in Republican-led states challenging the legitimacy of the Biden Administration’s so-called ESG rule.
February 15, 2025 - National Association of Plan Advisors
By:John Sullivan
A federal judge in Amarillo, Texas, again rejected arguments made by 26 attorneys general in Republican-led states challenging the legitimacy of the Biden Administration’s so-called ESG rule.
The Red State coalition asked the court to reconsider its earlier decision to affirm the rule after the U.S. Supreme Court overturned the Chevron doctrine in the case of Loper Bright Enterprises v. Raimondo in June.
The Labor Department rule would allow sustainable investment options in 401(k)s, relying on environmental, social, and governance factors to act as a “tiebreaker” when all other considerations involving competing investments are equal.
The AG plaintiffs brought the suit in January 2023, alleging that the 2022 Rule “undermines key protections for retirement savings of 152 million workers—approximately two-thirds of the U.S. adult population and totaling $12 trillion in assets—in the name of promoting environmental, social, and governance (‘ESG’) factors in investing, including the Biden Administration’s stated desire to address climate change.”
The rule—Prudence and Loyalty in Selecting Plan Investments and Exercising Shareholder Rights—took effect Jan. 30, 2023.
The suit claimed that “the 2022 Rule oversteps the Department’s statutory authority under the Employment Retirement Income Security Act of 1974 (‘ERISA’), 29 U.S.C. § 1001 et seq., and is contrary to law”—and said the 2022 Rule “is also arbitrary and capricious.”
Yet Judge Matthew Kacsmaryk of the U.S. District Court for the Eastern District of Texas disagreed and wrote in his decision that “Plaintiffs would have this Court vacate the 2022 rule to ‘restore the protections of the 2020 rules.’ …However, the 2020 Rule has a tiebreaker provision that would also violate Plaintiffs’ interpretation of ERISA. But ERISA’s text does not invalidate the tiebreaker provision of the 2020 Rule or the 2022 Rule.”
He further noted that fiduciaries “should strenuously guard against letting impermissible considerations taint their decisions. And wisdom would counsel the protections of the 2020 Rule to aid this prevention.”
Adding that it’s not the court’s job to decide the best outcome but rather to interpret the law, he concluded that “the 2022 Rule does not permit a fiduciary to act for other interests than the beneficiaries’ or for other purposes than the beneficiaries’ financial benefit. For that reason, under the Loper Bright standard, it is not contrary to [the] law.”
American Retirement Association CEO Brian Graff applauded the decision.
“The ARA supported this rule, and we are very pleased with the court’s thoughtful decision,” Graff said. “We hope the rule’s detractors will now finally recognize that the rule is consistent with ERISA’s longstanding principle that plan fiduciaries must always act in the financial interests of plan fiduciaries and so-called ‘ESG’ investments can only be considered consistent with that principle. Perhaps now EBSA can finally be done with this matter and move on to more important matters.”