A federal judge in Texas ruled against a coalition of 26 states challenging a Biden administration rule allowing retirement plan managers to factor environmental and social issues into investment decisions.
In a ruling late Thursday, Trump-appointed Judge Matthew Kacsmaryk, of the U.S. District Court for the Northern District of Texas, denied states' motion for summary judgment. The Republican-led states filed the lawsuit in January and argued a Department of Labor (DOL) rule unveiled months earlier violated a series of federal laws protecting Americans' retirement income and governing the federal government's rulemaking authority.
"The rule does not violate the [Administrative Procedure Act]," Kacsmaryk wrote in his 14-page ruling. "While the Court is not unsympathetic to Plaintiffs’ concerns over ESG investing trends, it need not condone ESG investing generally or ultimately agree with the Rule to reach this conclusion."
The decision also concluded that plaintiffs failed to prove the DOL's rules violated the Employee Retirement Income Security Act (ERISA) of 1974. The law safeguards the retirement income of 152 million U.S. workers, equivalent to more than two-thirds of the nation's adult population, and covers roughly $12 trillion in assets.
In November, the DOL unveiled the regulations which ultimately went into effect on Jan. 30. The rule opened the door for fiduciaries to factor so-called environment, social and governance (ESG) considerations into Americans' retirement accounts, an action the states argued could significantly harm the financial interests of customers.
After announcing the rule, then-Labor Secretary Marty Walsh said the move would "help plan participants make the most of their retirement benefits." DOL Assistant Secretary for Employee Benefits Security Lisa Gomez added that climate change and ESG factors were important for investors.
On Jan. 26, days before the rule was set to be implemented, the more than two dozen states led by GOP Utah Attorney General Sean Reyes filed the lawsuit and asked the court for a preliminary injunction to prevent the DOL from implementing the rule until a ruling had been issued in the case.
The states noted that ERISA requires retirement plan assets to be held for the exclusive purpose of providing benefits to participants in the plan and that the fiduciaries must act solely in the interest of said participants. The Supreme Court has previously ruled that such "benefits" are defined as "financial benefits."
"The Biden administration is promoting its climate change agenda by putting everyday people’s retirement money at risk," Reyes told FOX Business after the lawsuit was filed in January. "Americans are already suffering from the current economic downturn."
"Permitting asset managers to direct hard-working Americans’ money to ESG investments puts trillions of dollars of retirement savings at risk in exchange for someone else’s political agenda," he continued. "We are acting with urgency on this case because this illegal rule is set to take effect next week. It must be stopped."
Over the past few years, massive asset managers and financial institutions have increasingly focused on prioritizing ESG factors when making key investment decisions. They have particularly set their sights on investing in companies based on those companies' efforts to combat climate change and curb their carbon footprints.
Companies like BlackRock, State Street and Vanguard, which collectively manage trillions of dollars in assets, have taken lead roles in the ESG movement.
In response to the growing movement, Republican state attorneys general and financial officers have fought back, canceling contracts with the firms and threatening legal action over how they handle customers' investments.
In addition to Utah, Alabama, Alaska, Arkansas, Florida, Georgia, Idaho, Indiana, Iowa, Kansas, Kentucky, Louisiana, Mississippi, Missouri, Montana, Nebraska, New Hampshire, North Dakota, Ohio, South Carolina, Tennessee, Texas, Virginia, West Virginia and Wyoming were listed as plaintiffs in the lawsuit challenging the DOL's ESG rule.