Over two dozen states are suing the Biden Administration in an effort to halt the Department of Labor (DOL) Environmental, Social and Governance (ESG) final rule that would allow plan fiduciaries to consider climate change and ESG factors when selecting investments.
Utah Attorney General Sean Reyes (R-UT) and Texas Attorney General Ken Paxton (R-TX) filed the lawsuit in a federal district court in Texas on Thursday and asked the court for a preliminary injunction to stop the rule from going into effect this Monday, January 30. The lawsuit is also seeking “permanent relief in the form of a declaration that the ESG Rule violates the APA and ERISA and is arbitrary and capricious.”
In the suit, plaintiffs allege that the rule violates the Employee Retirement Income Security Act of 1974 (ERISA) and the Administrative Procedure Act and accuse the Labor Department of overstepping its statutory authority.
In a press statement announcing the filing, Paxton accused the rule of prioritizing “woke Environmental, Social and Governance investing over protecting the retirement savings of approximately two-thirds of the U.S. population.” Paxton also called the move towards sustainable practices illegal on his Twitter account, and said it “sacrifices Americans’ retirement accounts on the altar of woke corporations’ radical leftist agenda.”
Additional Plaintiffs
The coalition of states suing the Biden Administration include Utah, Virginia, Louisiana, Alabama, Alaska, Arkansas, Florida, Georgia, Indiana, Idaho, Iowa, Kansas, Kentucky, Mississippi, Missouri, Montana, Nebraska, New Hampshire, North Dakota, Ohio, South Carolina, Tennessee, Texas, West Virginia, and Wyoming. All the states are led by Republican attorney generals.
Publicly traded energy company Liberty Energy and its subsidiary Liberty Oilfield Services, along with oil and gas non-profit Western Energy Alliance, are also named as plaintiffs in the lawsuit.
Liberty Oilfield Services, who is a plan sponsor, argues in the lawsuit that as a result of the new rule, they will “be forced to expend additional time and resources monitoring and reviewing recommendations from its investment advisors, without the benefit of recordkeeping requirements or clearer fiduciary duty regulations, to ensure they are focusing explicitly on pecuniary considerations and not collateral ESG factors.”
Another Challenge to ESG
The lawsuit marks another challenge in the sustainability space, which has largely driven a wedge among leaders in the retirement space. Large asset managers including BlackRock, State Street, and Vanguard have all lead efforts in the ESG movement.
As a result of these increasing interests towards sustainability, Republican-led states have doubled down on challenging ESG. Last week, Governor Ron DeSantis (R-FL) approved measures barring state-run fund managers in Florida from considering ESG factors in investments. DeSantis also proposed legislation to codify his actions.
The final rule—Prudence and Loyalty in Selecting Plan Investments and Exercising Shareholder Rights—was announced in November of last year, after the Biden Administration reversed Trump-era regulations that prevented ESG involvement in 401(k) plans. The Trump Administration had previously said that plan fiduciaries could not invest in “non-pecuniary” vehicles that sacrificed investment returns or take on additional risk. “Removing the prior administration’s restrictions on plan fiduciaries will help America’s workers and their families as they save for a secure retirement,” said Secretary of Labor Marty Walsh, at the time of the announcement.
SEE ALSO:
- ESG Funds in 401ks Cleared by New Labor Department Rule
- Bonnie Treichel Talks Retirement Income Solutions, New ESG Rule and SECURE 2.0
- A Closer Look at Biden Administration’s New ESG Rule: Groom Law Group
Amanda Umpierrez is the Managing Editor of 401(k) Specialist magazine. She is a financial services reporter with over six years of experience and a passion for telling stories and reporting news. Amanda received her degree in journalism and government and politics at St. John’s University. She is originally from Queens, New York, but now resides in Denver, Colorado with her partner. In her free time, Amanda enjoys running, cooking, and watching the latest drama show.
