Twenty-five Republican state attorneys general have filed a lawsuit challenging the Department of Labor’s new rule that allows plan fiduciaries to consider climate change and other environmental, social and governance factors when they select retirement investments and exercise shareholder rights, such as proxy voting.
The challenge is partially spearheaded by Texas Attorney General Paxton and maintains that fiduciaries, by considering nonfinancial factors when administering trust assets, may “focus on advancing an ESG agenda instead of achieving long-term financial stability for their clients,” which could be “detrimental to the retirement accounts of hardworking Americans.”
The DOL rule, announced in November, went into effect Monday. It is in response to President Biden’s May 20, 2021, executive order directing the federal government to identify and assess policies to protect the life savings and pensions of America’s workers and families from the threats of climate-related financial risk, according to the Labor Department.
Assistant Secretary for Employee Benefits Security Lisa M. Gomez said in a statement in November that the new rule “will make workers’ retirement savings and pensions more resilient by removing needless barriers and ending the chilling effect created by the prior administration on considering environmental, social and governance factors in investments.”
But the attorneys general said in their request for relief that the Labor Department has exceeded its authority with the rule.
“By formally injecting ESG concepts into the [Employee Retirement Income Security Act] prudent duty regulations, DOL has ventured into territory that Congress explicitly rejected when it drafted ERISA,” they said.
Additionally, they said, the rule makes it harder for beneficiaries to police the conduct of their fiduciaries, who they claim now have the ability to “act with mixed motives.”
“My office will do everything in its power to ensure that financial institutions are providing recommendations based upon the economic value of prospective investments — as the law demands — rather than squandering Missourians’ hard-earned retirement savings on funding a radical environmental ideology,” Missouri Attorney General Andrew Bailey said in a statement.