In light of a recent major Supreme Court ruling, a U.S. appeals court ordered a Texas judge on Thursday to reconsider his decision upholding a Biden administration rule that permits socially conscious investing by employee retirement plans.
Twenty-five Republican-led states and oil drilling company Liberty Energy are suing to block the U.S. Department of Labour rule. In September last year, U.S. District Judge Matthew Kacsmaryk in Amarillo, Texas, declined to block the rule, prompting an appeal from the states and Liberty.
Kacsmaryk’s decision was based on the 40-year-old legal doctrine known as Chevron deference, which required courts to defer to agencies’ interpretations of ambiguous laws they enforced. However, the U.S. Supreme Court recently eliminated Chevron deference, stating that courts should use their independent judgment to determine the validity of agency rules, thereby limiting federal agencies’ rulemaking power.
A three-judge panel of the 5th U.S. Circuit Court of Appeals instructed Kacsmaryk to reconsider the case without relying on Chevron deference but left the rule in effect for now. The rule, effective since February 2023, allows 401(k) and other plans to consider environmental, social, and corporate governance (ESG) factors as a “tiebreaker” between two or more financially equal investment options. It replaced a Trump administration rule that prohibited plans from considering non-financial factors.