Republicans challenge DOL’s ESG rule 

February 8, 2023

In the latest anti-ESG action taken in the US, Republicans in the Senate and House have filed joint bills to nullify the Department of Labor’s (DOL’s) new ESG rule for retirement plans.  

On January 26, attorney generals from 25 Republican states filed a suit to invalidate the Prudence and Loyalty in Selecting Plan Investments and Exercising Shareholder Rights. 

The suit also seeks to prevent the DOL from implementing the rule, which was due to come into effect on January 30. 

In November, the rule was finalised to allow plan fiduciaries to consider climate change and ESG in selecting investments. 

Even though the rule encourages fiduciaries to consider ESG policies, it does not require them to protect against the threats of climate-related risk.  

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

Republicans have challenged the DOL’s rule for undermining key protections for retirement savings of 152 million US workers. 

The rule also oversteps the department’s authority under the Employment Retirement Income Security Act, according to Republicans. 

The Republican bill aims to postpone the effective date of the DOL’s rule and declare the rule as “arbitrary and capricious.” 

In a statement, Ken Paxton, the attorney general of Texas, said: “For generations, federal law has required that fiduciaries place their clients’ financial interests at the forefront, and I intend to fight the Biden Administration in court to ensure that they cannot put hard-working Americans’ retirement savings at risk.” 

The lawsuit contributes to the rise of anti-ESG sentiments that have continued to grow across Republican states. 

In January, Kentucky threatened to divest from 11 major financial companies for participating in a boycott of energy companies.  

In December, Florida divested $2bn from BlackRock for focusing on ESG rather than higher returns for investments. 

The DOL’s rule also contradicts the ideology of the State Financial Officer Foundation, which was established by Republicans to oppose the use of ESG principles in investment decisions for public pensions. 

In June, the lobbying group highlighted key concerns of the SEC’s proposed ESG disclosure rule.