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Compliance January 27, 2023
New DOL Rule on ESG Investing in Retirement Plans Draws Republican-Led Legal Challenge
The rule is scheduled to take effect on Monday, but 25 state attorneys general and three fossil fuel advocates are seeking an injunction to block it.
Reported by Paul Mulholland
Twenty-five states with Republican attorneys general, two oil-services companies and an oil and natural gas advocacy group filed a lawsuit in U.S. District Court on Thursday against the Department of Labor seeking to prevent and overturn its rule permitting environmental, social and governance considerations in retirement investing.
The lawsuit, filed in the U.S. District Court for the Northern District of Texas, also was brought by oil-service companies Liberty Energy and Liberty Oilfield Services, advocacy group Western Energy Alliance and retirement plan participant James R. Copeland. It seeks to prevent the implementation of the DOL’s final rule regarding the use of ESG strategy in retirement investing, set to take effect on Monday, January 30.
The lawsuit claims the rule oversteps the Department of Labor’s statutory authority under the Employment Retirement Income Security Act of 1974 and seeks a preliminary injunction against it. The plaintiffs are also asking the court to grant “permanent relief in the form of a declaration that the ESG Rule violates the [federal Administrative Procedures Act] and ERISA and is arbitrary and capricious.”
The rule clarifies that fiduciaries may consider ESG factors in investing without violating their fiduciary duties but does not require it. The rule as adopted clarifies how the fiduciary duties of prudence and loyalty under ERISA apply to selecting investments and investment courses of action, including selecting qualified default investment alternatives; exercising shareholder rights such as proxy voting; and the use of written proxy voting policies and guidelines.
The rule reverses amendments to the department’s investment duties regulation adopted in 2020, during the administration of President Donald Trump.
The lawsuit claims that the 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.”
The state attorneys general bringing the suit represent Alabama, Alaska, Arkansas, Florida, Georgia, Idaho, Indiana, Iowa, Kansas, Kentucky, Louisiana, Mississippi, Missouri, Montana, Nebraska, New Hampshire, Ohio, South Carolina, North Dakota, Tennessee, Texas, Utah, Virginia, West Virginia and Wyoming.