Fifth Circuit sends ESG rule to lower court following Loper Bright

The United States Court of Appeals for the Fifth Circuit ruled July 18 that the U.S. District Court for the Northern District of Texas must rehear a case opposing the Department of Labor’s (DOL) 2022 environmental, social, and corporate governance (ESG) investing rule. Appeals Judge Don R. Willett said the lower court needed a chance to review the merits of the case after the Supreme Court overturned Chevron deference in Loper Bright Enterprises v. Raimondo on June 28.

The district court’s September 2023 decision upholding the rule relied on Chevron deference. District Judge Matthew Kacsmaryk said in the opinion courts had to defer to the DOL’s interpretation of the Employee Retirement Income Security Act of 1974 (ERISA) because the law was ambiguous and prior rules supported the department’s interpretation.

The background

A group of Republican states—led by Texas and Utah—filed a lawsuit in January 2023 challenging the DOL rule, which allowed the use of ESG investing considerations in pension plans governed by ERISA.

The states argued the rule overstepped the DOL’s statutory authority under ERISA and conflicted with “ERISA’s clear command that fiduciaries act with the sole motive of promoting the financial interests of plan participants and their beneficiaries.”

Additional reading:

Prudence and Loyalty in Selecting Plan Investments and Exercising Shareholder Rights rule (2023)

Chevron deference (doctrine)

Environmental, social, and corporate governance (ESG)