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A Biden administration rule allowing employee retirement plans to consider environmental, social and governance issues in investment decisions survived a legal challenge by 26 states on Thursday.
Judge Matthew J. Kacsmaryk of the U.S. District Court in Amarillo, Texas, said in a 14-page opinion that he would not block the rule, part of the so-called ESG investing trend that places emphasis on companies’ track records on issues. labor, social Justice and environmental factors.
Judge Kacsmaryk’s opinion found flaws in the lawsuit, filed in January by Republican-led states, alleging the rule violated federal law governing retirement plans. Among other things, the opinion argued that Congress had not specifically addressed whether factors such as ESG could be used to determine investment priorities.
“While the court is not indifferent to plaintiffs’ concerns about ESG investing trends, it need not approve of ESG investing generally or, ultimately, agree with the rule to reach this conclusion,” the court wrote. Judge Kacsmaryk.
ESG investing has become increasingly popular in recent years, as corporations have come under additional scrutiny for their impact on worsening the climate crisis and social issues such as racial inequality. Many investment funds have made ESG considerations a prerequisite for including a company’s stock in their portfolios, forcing corporations to grapple with issues that bridge commerce and morality.
The political tug-of-war over whether retired investors can weigh environmental and social factors goes back several years. In 2020, President Donald J. Trump’s Labor Department said it was seeking new federal regulations to discourage such considerations. In 2021, after President Biden took office, the department proposed rule changes that would make it easier for retirement plans to take social factors into account.
Those changes went into effect on January 30. In March, Congress passed a measure blocking them, after two Democratic senators, Jon Tester of Montana and Joe Manchin III of West Virginia, joined Senate Republicans in a rebuke of Biden. Later that month, Biden used his first veto to keep the Labor Department rule in place.
The states in the lawsuit, led by Texas and Utah, asked Judge Kacsmaryk in May for summary judgment in their favor. The Labor Department then filed a motion for its own summary judgment, which the judge granted Thursday.