Federal judge upholds DOL ESG rule

February 19, 2025

A federal judge has once again upheld a Department of Labor (DOL) rule allowing retirement plan fiduciaries to consider ESG factors when choosing investments.

Texas Northern District Court Judge Matthew Kacsmaryk ruled that the Prudence and Loyalty in Selecting Plan Investments and Exercising Shareholder rights does not violate the Employment Retirement Income Security Act (ERISA) of 1974.

The rule was designed to reverses previous regulation that was approved under Trump’s administration in 2020, which stated considerations must be based solely on financial metrics.

It encourages, but does not require, fiduciaries to consider policies which protect against the threats of climate-related risk

The rule was finalised in 2022 and has been in effect since January 2023. Later that same month, it was challenged by 26 Republican attorneys general, along with several energy companies and private individuals.

They argued that the rule undermines crucial protections for 152 million retirement savers, exceeds the department's authority under ERISA, and is arbitrary and capricious.

In an initial September 2023 decision, Kacsmaryk dismissed the claim and upheld the DOL rule.

Then, in January 2024, Republican attorneys general appealed, focusing on the rule’s tiebreaker provision. This provision lets fiduciaries consider other benefits, not related to risk and return, when choosing between investment options in a tie.

However, Kacsmaryk has once again sided with the DOL, stating that the rule does not allow fiduciaries to act in the interests of anything other than the beneficiaries or for purposes other than the beneficiaries' financial benefits, meaning it does not violate any law or act.

Minerva’s blog focuses on the latest developments in ESG investing and stewardship. Minerva is a global provider of sustainable stewardship solutions with over 25 years of expertise. Minerva empowers investors by providing essential tools, including ESG research and data, enabling them to navigate the intricate landscape of stewardship and proxy voting, whilst ensuring their decisions are well-informed and aligned with sustainable principles.

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