AG Coalition Seeks Injunction Preventing Implementation of Labor Department’s ESG Investment Rule

  • A coalition of 25 Republican AGs announced a lawsuit against the Department of Labor challenging the implementation of a new rule permitting retirement plan fiduciaries to consider environmental, social, and governance (ESG) factors when choosing plan investments. The AGs argue that the rule oversteps the DOL’s statutory authority under the Employee Retirement Income Security Act of 1974 (“ERISA”) and that it is arbitrary and capricious.
  • According to the complaint, the new investment rule conflicts with ERISA provisions requiring that fiduciaries make retirement plan investments with the “exclusive purpose” of providing financial benefits to the beneficiaries. The AGs also argue that the DOL has exceeded its authority in allowing consideration of nonpecuniary factors with respect to retirement investments. Finally, they argue the rule is arbitrary and capricious because, among other reasons, the DOL has ignored relevant considerations such as the harm to plan participants and beneficiaries, and has relied on inappropriate justifications for changes to the regulation such as “confusion” over the previous rule.
  • The complaint seeks a declaration that the rule is arbitrary and capricious and contrary to law and an injunction preventing implementation of the rule, among other things.
  • Cozen O’Connor attorneys have previously discussed burgeoning AG activity with respect to ESG-focused investing and offered businesses commonsense practices to consider related to their ESG plans, policies, and procedures in the face of increased AG scrutiny.