A US federal judge in Texas has upheld a regulation introduced under former President Joe Biden’s administration, allowing employee retirement plans to consider ESG factors in investment decisions.
Judge Matthew Kacsmaryk, based in Amarillo, rejected a legal challenge from 26 Republican-led states, oil drilling company Liberty Energy, and an oil and gas trade association. The lawsuit argued that the rule contradicted federal law, specifically the Employee Retirement Income Security Act (ERISA) of 1974, which mandates that retirement plan administrators act solely in the interest of plan participants.
The rule, implemented by the US Department of Labor in 2022, permits 401(k) and similar pension schemes to use ESG considerations as a “tiebreaker” when choosing between equally financially viable investment options. It replaced a 2020 regulation introduced during Donald Trump’s presidency, which barred retirement plans from factoring in non-financial considerations.
Kacsmaryk, a Trump appointee, had previously dismissed similar arguments in September 2023. However, a federal appeals court later directed him to reconsider his ruling after the U.S. Supreme Court’s conservative majority overturned the long-standing “Chevron deference” doctrine. The June ruling required courts to apply independent judgment rather than defer to agencies’ interpretations of ambiguous statutes.
In his decision on Friday, Kacsmaryk ruled that the ESG rule was not in conflict with ERISA, even under the revised legal framework. He criticised the plaintiffs’ arguments as “wooden textualism that courts should endeavour to avoid.”
The ruling marks a significant moment in the ongoing political and legal battle over ESG investing. The Biden-era regulation is likely to face further scrutiny, particularly as a new Trump administration is expected to revisit the rule if elected.
Representatives for the Republican-led states and the US Department of Labor have not yet commented on the decision.
