Texas Judge Upholds Rule Allowing ESG Factors in Retirement Plans

A federal judge in Texas upheld a rule, adopted during the Biden administration, permitting employee retirement plans to consider environmental, social, and corporate governance (ESG) factors in investment decisions. The ruling, issued on Friday, rejects arguments from Republican-led states and the oil industry that the rule violates federal law. U.S. District Judge Matthew Kacsmaryk, appointed by Trump, stated that the rule remains valid despite a recent Supreme Court ruling that curbed agencies' regulatory power. The 2022 rule allows 401(k) plans to use ESG factors as a tiebreaker between financially equal investment options. This replaced a 2020 rule under the Trump administration that barred such considerations. The lawsuit, brought by 26 Republican-led states, challenged the rule's compliance with the Employee Retirement Income Security Act of 1974 (ERISA), arguing it jeopardized Americans' retirement savings by allowing non-financial factors. Kacsmaryk previously rejected these arguments in September 2023, and reaffirmed his decision after a federal appeals court directed him to reconsider following the Supreme Court's decision on agency deference.