State attorneys general appeal court decision upholding Biden ESG rule

A group of 26 state attorneys general are appealing a federal court decision to uphold the Biden administration's ESG rule.

The AGs – all Republicans – filed the one-sentence appeal notice Thursday in the Court of Appeals for the Fifth Circuit. Known for its conservative bent, the Fifth Circuit notably tossed out the Obama administration's fiduciary rule in 2018.

The ESG rule addresses what fiduciaries can consider when making plan investments and outlines that they may, but are not required to, consider ESG [environmental, social, and governance] factors when evaluating plan investments.

In addition to the 26 AGs, the plaintiffs included Liberty Energy, Inc., an energy company, and three individuals, while the defendant was then-DOL Secretary Marty Walsh.

Plaintiffs say that the department’s ESG rule undermines key protections for retirement savings and oversteps the department’s statutory authority under a 1974 law known as the Employee Retirement Income Security Act, which governs a broad range of retirement and health benefit plans.

The lawsuit claims the ESG rule is “arbitrary and capricious” and a violation of both ERISA and the Administrative Procedure Act.

U.S. District Judge Matthew Kacsmaryk threw out their lawsuit on Sept. 21.

'Neutral' ESG rule

The Labor Department's ESG rule bounced from the Trump administration to Biden’s. The final rule that went into effect Jan. 30 peeled off some of the provisions that opponents found objectionable, but not enough for the plaintiffs.

The final rule is fairly "neutral," said Brad Campbell, partner with Faegre Drinker Biddle & Reath, speaking during a webinar earlier this year.

"They need to consider all relevant factors, and it merely says they may consider these ESG-related factors if they determine that they are relevant," he explained. "They still cannot sacrifice returns intentionally to achieve collateral objectives. They still can't increase risks on purpose to achieve collateral objectives. They have to invest for the economic interest of the workers and their retirement. So you have all the normal protections."

Congress in March passed a Republican-backed resolution to repeal the rule but Biden, a Democrat, vetoed it.

InsuranceNewsNet Senior Editor John Hilton covered business and other beats in more than 20 years of daily journalism. John may be reached at john.hilton@innfeedback.com. Follow him on Twitter @INNJohnH.

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InsuranceNewsNet Senior Editor John Hilton has covered business and other beats in more than 20 years of daily journalism. John may be reached at john.hilton@innfeedback.com. Follow him on Twitter @INNJohnH.