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A federal judge in Texas has given President Joe Biden an unexpected legal win, upholding one of the current administration's efforts to tackle climate change.
More than two dozen Republican-led states had challenged the Labor Department rule that allows employee retirement plans to consider environmental, social and governance (ESG) factors when making investment decisions.
Judge Matthew Kacsmaryk, a conservative appointee of former President Donald Trump to the United States District Court for the Northern District of Texas in Amarillo, has previously blocked Biden's bid to end the "remain in Mexico" immigration policy. And in April, Kacsmaryk temporarily halted the use of mifepristone, commonly known as the abortion pill.
Kacsmaryk earlier this year refused to transfer the lawsuit over the ESG rule to another court, rejecting the Biden administration's claim that the states were "judge shopping" by filing the lawsuit in Amarillo, where he is the only judge.
And in an unanticipated outcome, Kacsmaryk sided with the Biden administration and concluded in a September 21 opinion that the administration's investment rule didn't violate the Administrative Procedure Act.
The rule still requires that financial considerations come first, and does not create "an overarching regulatory bias in favor of ESG strategies," Kacsmaryk wrote.
"While the court is not unsympathetic to plaintiffs' concerns over ESG investing trends, it need not condone ESG investing generally or ultimately agree with the rule to reach this conclusion."
More than two dozen Republican states, led by Texas Attorney General Ken Paxton and Utah Attorney General Sean Reyes, had urged the court to block the rule in February.
The 2022 rule "will result in reduced investment in the fossil fuel industry, which will reduce the revenue that accrues to the Plaintiff states through oil and gas extraction," they wrote in a motion for a preliminary injunction.
Reduced investment in the fossil fuel industry would also "decrease employment, adversely impact industries that support fossil fuel development, and decrease overall economic activity and tax revenue," the motion argued.
"We are disappointed by the judge's decision," Rich Piatt, a spokesperson for Reyes' office, told Newsweek.
"Together with 25 other states, we filed this suit to ensure that the Department of Labor follows the law in requiring retirement and pension plans to make decisions for the benefit of plan participants, not social or political priorities.
"We are evaluating next steps, including a potential appeal. We will continue to fight on all fronts to protect the interests of investors and all Utahns against the ESG agenda."
Newsweek has contacted the Department of Justice and the offices of the attorneys general of Texas for comment via email.
The rule, which was finalized in November last year, reversed restrictions adopted by the Trump administration on considering ESG factors in making investment decisions. The Labor Department said the Trump rules would restrict ESG investing even when it would benefit plan participants financially.
The rule "clarifies that retirement plan fiduciaries can take into account the potential financial benefits of investing in companies committed to positive environmental, social and governance actions as they help plan participants make the most of their retirement benefits," Marty Walsh, then Labor Secretary, said in November.
"Removing the prior administration's restrictions on plan fiduciaries will help America's workers and their families as they save for a secure retirement."
In early March Congress passed a Republican-backed resolution to repeal the rule. Biden later vetoed the proposal.
Update 9/27/23, 6:20 a.m. ET: This article has been updated with comment from Rich Piatt.
About the writer
Khaleda Rahman is Newsweek's National Correspondent based in London, UK. Her focus is reporting on education and national news. Khaleda ... Read more