Labor Department drops Biden-era ESG fiduciary rule

The agency will no longer defend the rule allowing retirement plan managers to consider ESG factors and intends to work through a new rulemaking process on the topic “as expeditiously as possible.”

May 29, 2025 - HR Dive
Lamar Johnson, Reporter

Dive Brief:

• The U.S. Department of Labor informed the 5th U.S. Circuit Court of Appeals Wednesday that it will abandon the Biden administration’s rule allowing pension plan fiduciaries to consider ESG factors and other “collateral benefits” in tiebreaker situations, according to court documents.
• A lawyer with the Department of Justice’s civil division appellate staff said in a letter that “the Department has determined that it will engage in a new rulemaking on the subject of the challenged rule.” The new rulemaking process will be included in the Trump administration’s spring regulatory agenda, according to the May 28 letter.
• The Biden administration’s rule was challenged by a coalition of 26 Republican-led states, though had thus far held up in the face of litigation. The Labor Department asked for a temporary pause in the legal proceedings last month as it weighed rescinding the rule. A judge granted a 30-day pause, directing the agency to provide an update on what further actions it planned to take, with Wednesday’s filing representing the government’s response.

Dive Insight:

The Biden administration’s Labor Department finalized the rule, “Prudence and Loyalty in Selecting Plan Investments and Exercising Shareholder Rights,” in 2022, and it has been in effect since January 2023. At the time, the agency said the rule overturned guidance from the first Trump administration which had a “chilling effect” on fiduciaries.

The rule allowed retirement plan fiduciaries to consider ESG and other collateral benefits to break a tie when two or more investments “equally serve” the financial interests of the plan and it would be imprudent to invest in both or all options.

The Republican-led states leading the lawsuit have argued that the rule runs afoul of the Employment Retirement Income Security Act of 1974. However, a federal district court judge has twice ruled that the rule was permissible.

Texas Northern District Court Judge Matthew Kacsmaryk first dismissed the lawsuit in September 2023, though that ruling relied on the now-overturned Chevron doctrine. After hearing arguments in the case, the 5th Circuit later remanded the case back to Kacsmaryk for a ruling in light of that change. Kacsmaryk again ruled that the rule does not violate ERISA in February.

While the planned timeline for a new rule proposal will be unknown until the administration releases its regulatory agenda, the May 28 court filing said the Department of Labor “intends to move through the rulemaking process as expeditiously as possible.”