The Republican attorneys general of 25 U.S. states have filed a lawsuit against the Biden administration’s plan to empower pension fund managers to make “socially conscious” investment decisions.
The federal lawsuit filed Thursday in the U.S. District Court for North Texas seeks to stop implementation of the Department of Labor’s rule that allows private benefit plans to invest in funds that target environmental, social or governance issues (ESG).
The lawsuit alleges that the new rule “undermines key retirement savings protections for 152 million workers…a total of $12 trillion in assets” in the name of social policy, including tackling climate change.
The rule, which takes effect Jan. 30, reverses a restriction imposed during the Trump administration that requires retirement plans to consider only financial factors when making investment decisions and exercising shareholder rights.
“The Biden administration is promoting its climate change agenda by endangering ordinary people’s retirement money,” Utah Attorney General Sean Reyes, who is presiding over the lawsuit, said in a statement to DailyMail.com.
Utah Attorney General Sean Reyes leads 24 other GOP attorneys general in lawsuit challenging Biden administration rule to relax restrictions on ESG investments
The Labor Department and Biden’s Secretary of Labor Marty Walsh (above) are named as defendants in the lawsuit, which was filed Thursday in U.S. District Court for North Texas
“Allowing asset managers to direct the money of hard-working Americans into ESG investments jeopardizes trillions of dollars of retirement savings in exchange for someone else’s political agenda,” he added.
“We are acting urgently on this matter as this illegal rule comes into effect next week. It has to be stopped,” Reyes said.
The Labor Department and Biden’s Secretary of Labor Marty Walsh are named as defendants in the lawsuit. A spokesperson for Walsh referred requests for comment to the Justice Department, which did not immediately respond to a message late Thursday evening.
The final rule at the center of the dispute is known as the “Prudence and Loyalty in Selecting Plan Investments and Exercising Shareholder Rights,” and spanned 65 pages in the Federal Register when it was published Dec. 1.
If it goes into effect Monday as planned, it would repeal a 2020 Trump-era rule that had been criticized by some business groups and the financial industry.
The Labor Department has argued that the Trump-era rule restricting investment in ESG funds failed to take into account the positive impact that ESG considerations can have on long-term investment returns.
The new rule also allows fund managers to consider ESG factors when voting by proxy on behalf of shareholders.
The Labor Department has argued that the repeal of the Trump-era rule fails to account for the positive impact ESG considerations can have on long-term investment returns (file photo)
The plaintiffs in the lawsuit are 25 Republican attorneys general, as well as several private employers with benefit plans, and one person enrolled in an ERISA plan
Lisa Gomez, head of the Labor Department that enacted the rule, previously told Reuters the new policy would remove unnecessary barriers to investing based on ESG principles and end “the chilling effect created by the previous administration”. ‘.
The Labor Department argues that the rule, which applies only to private pension plans governed by the Employee Retirement Income Security Act of 1974 (ERISA), does not allow pension plans to pursue social goals at the expense of financial returns.
Outside the ERISA context, investors may choose to invest in funds that promote collateral objectives, and even choose to sacrifice return or increase risk to meet those objectives. rule.
“Such behavior would, however, be inadmissible for ERISA plan fiduciaries, who cannot sacrifice return or increase risk to advance collateral goals unrelated to the economic interests of plan participants in their favor,” it adds. up to it.
The ERISA Industry Committee, which represents employee benefits plans, cautiously supported the new Biden administration rule, after opposing some language in previous drafts.
‘[T]The final rule does not establish a mandate to consider any specific factor in every circumstance or give a thumbs up when selecting investments, leaving fiduciaries to manage plans in the interests of employees and retirees,” Andy Banducci, the group’s senior vice president, said in a statement in November.
“This rule is an insult to any American who is concerned about their retirement account,” said Texas Attorney General Ken Paxton, a plaintiff in the lawsuit.
But the rule change has angered Republicans, who argue it will push activist pension managers to squander workers’ savings.
“This rule is an insult to any American concerned about their retirement account,” Texas Attorney General Ken Paxton, a plaintiff in the lawsuit, said in a statement Thursday.
“The fact that the Biden administration is now choosing to jeopardize the financial security of the American working class to promote a waking political agenda is abusive and illegitimate,” he added.
The lawsuit comes amid growing discussions about ESG investing, with long-standing investors in the investment industry, such as Blackrock, facing backlash over their ESG goals.
Meanwhile, some publicly traded companies are under increasing pressure from activist shareholders to address ESG issues that could threaten their share value, such as carbon emissions and workplace diversity.
Funds that adhere to ESG principles oversee an estimated $6.5 trillion in assets, according to Reuters, though they experienced an unprecedented drop in investment last year amid the market downturn.
The case is 2:23-cv-00016-Z in the United States District Court for the Northern District of Texas.