More than two dozen states have filed a lawsuit against the Biden administration seeking to stop a rule that allows retirement plan managers to weigh environmental and social issues when making investments.
Utah Attorney General Sean Reyes filed the lawsuit Thursday with the support of 24 other Republican attorneys general. The lawsuit, filed in Texas federal court, seeks a preliminary injunction to stop the rule from going into effect on Jan. 30. This is part of a broader unified effort among Republican state officials to combat what is known as environmental, social, and governance practices, or ESG.
The rule in question was announced by the Department of Labor last year and would allow, though not require, fiduciaries to weigh ESG factors when making investment decisions for U.S. retirement accounts.
“The Biden Administration is promoting its climate change agenda by putting everyday people’s retirement money at risk,” said Reyes. “Americans are already suffering from the current economic downturn. 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.”
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While the rule still requires fiduciaries to prioritize the financial interests of plan participants and doesn’t allow potential gains to be supplanted by ESG objectives, the attorneys general are arguing that the rule violates the Employee Retirement Income Security Act, which mandates that retirement plan assets, should solely be invested to the benefit of participants.
“We are acting with urgency on this case because this illegal rule is set to take effect next week. It must be stopped,” said Reyes.
The Washington Examiner asked the Labor Department for comment.
Republican state officials have targeted ESG and what they call corporate overreach.
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This week, West Virginia Treasurer Riley Moore introduced legislation to require the state’s investment boards to cast proxy votes based on the financial interests of pensioners and taxpayers, not ESG factors. Proxy voting is a process that allows shareholders to vote on key issues while not personally attending corporations’ annual shareholder meetings. Republicans have accused large asset managers, who vote proxies on behalf of their clients, of using the power to leverage ESG goals.
Earlier this month, Gov. Ron DeSantis (R-FL) approved a measure prohibiting state-run fund managers in Florida from considering ESG factors when making investments. The measures ensure the state’s investment decisions are made “solely on maximizing the highest rate of return,” according to a news release.
