Lawsuits challenging the Biden administration’s new regulation allowing socially conscious retirement investing are invalid because they hinge on fundamental misunderstandings of the policy, according to a former senior Treasury official.
Mark Iwry, a Brookings Institution fellow and Obama-era deputy assistant Treasury secretary, filed identical amicus briefs Wednesday in the Texas and Wisconsin federal courts where the US Labor Department is defending its new rule. More than two dozen red-state attorneys general, as well as energy firms and retirement plan participants, claim the ESG rule threatens workers’ savings.
Environmental, social, and corporate governance investment criteria can be relevant to a retirement plan’s risk-return analysis, Iwry said. The plaintiffs’ effort to block the rule and replace it with a former Trump-era regulation reflects a poor understanding of what effect both policies have under the Employee Retirement Income Security Act of 1974 (Pub. L. 93-406), he said.
“Applying the governing statutory authority, both rules make clear the primacy of risk-return investing: An ERISA fiduciary’s investment decisions may never sacrifice risk-adjusted financial returns in order to achieve nonfinancial goals,” the briefs state.
The Labor Department has repeatedly made similar claims, insisting that the rule only permits ESG considerations when they are relevant to a retirement participant’s bottom line. The Trump rule’s emphasis on “pecuniary” factors was confusing, officials have said, and could have a “chilling effect” on permissible ESG investing.
The latest rule is facing Republican opposition on multiple fronts. In addition to the two federal lawsuits, lawmakers in Congress are drafting a bill that would modify ERISA to explicitly ban ESG investing. Several states have sought to restrict public pensions from dealing with pro-ESG contractors.
The cases are Utah v. Walsh, N.D. Tex., No. 2:23-cv-00016, brief filed 4/5/23 and Braun v. Walsh, E.D. Wis., No. 2:23-cv-00234, brief filed 4/5/23.
