Biden rule letting retirement fund managers consider ESG factors to take effect despite red states' lawsuit
25 Republican-led states filed a lawsuit last week to try to block the rule
Starting Monday, retirement plan managers will be able to factor in a company's environmental, social, and governing (ESG) positions when making investment decisions, as a Biden administration rule goes into effect – despite the objection of 25 Republican-led states.
The Department of Labor rule, first announced in November, reverses restrictions put in place under the Trump administration. It is now facing a lawsuit from Utah and two-dozen other states, who argue that it violates the Employee Retirement Income Security Act (ERISA) of 1974, which says retirement plan assets must be held for the exclusive purpose of providing benefits to participants in the plan, and that fiduciaries must act solely in the participants' interests. The GOP-led states say that by focusing on social and political agendas, plan managers will be compromising the growth potential of participants' accounts.
"Permitting asset managers to direct hard-working Americans’ money to ESG investments puts trillions of dollars of retirement savings at risk in exchange for someone else’s political agenda," Utah Attorney General Sean Reyes told FOX Business last week, saying the rule "must be stopped."
The lawsuit was filed Thursday in federal court in Texas. The court has yet to issue a ruling on the request for an injunction. If granted, the rule would be blocked for the duration of the case, depending on any subsequent appeal.
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Over the past few years, massive asset managers and financial institutions have increasingly focused on prioritizing ESG factors when making key investment decisions. They have particularly set their sights on investing in companies based on those companies' efforts to combat climate change and curb their carbon footprints.
Companies like BlackRock, State Street, and Vanguard, which collectively manage trillions of dollars in assets, have taken lead roles in the ESG movement. In response to the growing movement, Republican state attorneys general and financial officers have fought back, canceling contracts with the firms and threatening legal action over how they handle customers' investments.
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The Labor Department did not respond to Fox Business's request for comment on the lawsuit. In November, Labor Secretary Marty Walsh said the new rule would "help plan participants make the most of their retirement benefits."
Republicans, however, believe it does more to advance the Biden administration's green agenda than help investors handle their retirement savings.
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"This rule is an affront to every American concerned about their retirement account," Texas Attorney General Ken Paxton said in a statement to FOX Business. "The fact that the Biden Administration is now opting to risk the financial security of working-class Americans to advance a woke political agenda is insulting and illegal."
Fox Business' Thomas Catenacci contributed to this report.