Biden Administration's DOL Rule Enabling Investment Advisors to Consider ESG Factors Survives Judicial Challenge

On September 21, 2023, Judge Kacsmaryk (N.D. Texas), a famously conservative Trump-appointed jurist, upheld a Department of Labor rule promulgated by the Biden Administration that enables employee retirement plans to consider ESG factors when making investment decisions.  This particular DOL rule concerning ERISA fiduciaries had been a significant item of partisan contention, as it reversed an earlier Trump Administration rule prohibiting ERISA fiduciaries from considering such ESG factors.  Further, President Biden had to issue his first veto to preserve this DOL rule after Congress passed a law overturning it (Congressional Republicans received the support of a couple of Democratic Senators).  Thus, this decision by Judge Kacsmaryk--who had earlier enjoined the FDA's approval of abortion medication--was considered somewhat surprising by commenters.  

This particular lawsuit was brought by an array of twenty-six state attorneys-general, who challenged the DOL rule as a "violat[ion] of the Administrative Procedures Act [] because it is arbitrary and capricious and runs afoul of ERISA."  The court granted summary judgment in favor of the Department of Labor, holding that "after affording DOL the deference it is presently due under Chevron, the Court cannot conclude that the Rule is 'manifestly contrary to the statute,'" and "[t]he Rule [i]s [n]ot [a]rbitrary and [c]apricious."  Nonetheless, the Court commented that it "is not unsympathetic to Plaintiffs' concerns over ESG investing trends," but that "it need not condone ESG investing generally or ultimately agree with the Rule to reach th[e] conclusion" that "the Rule does not violate the APA." 

In short, this decision--while upholding the Biden Administration's DOL rule against a serious legal challenge--did so by emphasizing two things: (1) the relative innocuousness of the rule ("The 2022 Rule changes little in substance from the 2020 Rule and other rulemakings"); and that (2) the Biden Administration abided by proper procedure when issuing the rule, and so was entitled to administrative deference.  In other words, this is not a striking decision articulating a new pro-ESG rationale or a paean to the Biden Administration's pro-ESG policies.  Rather, it was a narrow decision on technical, legal grounds, which emphasized the limited nature of the DOL rule.  Nonetheless, the DOL rule survived, which is a notable victory for the Biden Administration.