Supreme Court's Decision: A Turning Point for Biden's ESG Rule?

Supreme Court's Impact on Biden's ESG Rule

A forthcoming Supreme Court ruling on federal agency powers could affect President Biden's rule (2022 Department of Labor rule) allowing retirement plans to consider environmental, social, and corporate governance (ESG) factors. Two fishing companies are urging the Supreme Court justices to either limit or reverse a 1984 legal precedent. This precedent mandates judges to yield to interpretations of ambiguous U.S. laws by federal agencies.

Legal Battle Over ESG Rule and Its Implications for Retirement Plans

The ESG rule, deemed unclear and challenged by Republican-led 26 states, lets retirement plans balance ESG factors with traditional financial factors. The states argue that this exceeds the limits of the law, which requires plans to work "solely and exclusively" for the financial benefit of participants. As a result, allowing consideration of collateral factors violates the Employee Retirement Income Security Act (ERISA). The appeal states that “fiduciaries cannot serve two masters, no matter how limited or (allegedly) benign the circumstances.”

ESG Investing at Risk Pending Court Decision

The 26 states, spearheaded by Utah and Texas, have requested a U.S. appeals court to hold off on deciding whether to block the ESG rule until the Supreme Court delivers its verdict on agency powers, expected by the end of June.

If the Supreme Court limits regulatory powers, the ESG investment landscape could drastically change. The challenged rule governs plans investing $12,000 billion on behalf of more than 150 million people, counteracting restrictions imposed by President Trump limiting consideration of ESG factors.