The Trump administration has initiated steps to repeal a Biden-era regulation that permits employers managing workplace retirement plans, such as 401(k)s, to consider environmental, social, and corporate governance (ESG) factors when selecting investment options for employees and retirees.
In a filing to the US Court of Appeals for the Fifth Circuit on Wednesday, government lawyers confirmed the Labour Department intends to launch a rulemaking process—expected to appear on the agency’s spring regulatory agenda—that could ultimately lead to the formal rescission of the rule through a notice-and-comment procedure.
The move marks an intensification of Republican efforts to curtail ESG investing across federal, state, and local government sectors, viewing it as a vehicle for advancing progressive policy under the guise of fiduciary responsibility. The Biden rule, introduced in 2023, had previously survived two legal challenges in Texas, where a conservative, Trump-appointed judge upheld it despite opposition from over two dozen Republican state attorneys general.
Pressure to accelerate the administration’s stance came from a panel of judges overseeing the ongoing legal case, who in April denied a Trump team request to indefinitely pause the litigation, instead urging a decision on the rule’s future.
The Biden regulation had overturned Trump-era policies that discouraged retirement plan fiduciaries from considering non-financial factors, such as climate or social impact, when investing on behalf of beneficiaries. The Biden rule allowed for ESG criteria to serve as a tiebreaker when competing investment options were otherwise financially equivalent.
However, Trump officials have historically questioned the likelihood of such investment “ties,” asserting in a 2020 rule preamble that “true ties rarely, if ever, occur.” The current administration may now seek to eliminate the tiebreaker provision or impose stricter reporting requirements on fiduciaries, effectively deterring the inclusion of ESG-aligned investments in workplace retirement plans.
Although ESG-specific options remain relatively rare in defined-contribution plans, legal risks have come into sharper focus following a recent case involving American Airlines. The company was found to have breached fiduciary duties by selecting BlackRock Inc. to manage employee benefits—amid allegations the asset manager was advancing a “green” activist agenda. The ruling, the first of its kind, has unsettled the 401(k) industry, prompting plan sponsors and advisers to reassess the legal exposure of their third-party investment providers.
As the administration pursues new regulatory steps, further guidance may emerge to clarify permissible investment strategies and legal obligations for retirement plan managers in an increasingly polarised ESG landscape.
