Last week at the PracticalESG.com conference, I moderated a panel on the rising anti-ESG movement. One major theme discussed was the role of anti-ESG in investing. Many anti-ESG advocacy groups are bringing lawsuits against financial service providers alleging breach of fiduciary duty. These suits argue that consideration of ESG factors in investments comes at the expense of financial returns. Recently, a federal court in the Northern District of Texas punched a hole in this theory. The case arose as a challenge to the Department of Labor’s (DOL’s) ESG investing rule brought by 25 Republican Attorneys General.
A Ropes & Gray memo discusses the court’s ruling stating:
“The judge held that the rule, which allows consideration of ESG-related factors in selecting plan investment options in some circumstances, is not inconsistent with ERISA’s requirement that fiduciaries act for the ‘exclusive purpose’ of providing ‘financial benefits’ to participants. In response to the states’ assertion that ‘the plain text of ERISA forecloses consideration of non-pecuniary factors,’ the judge pointed to consistent DOL statements over many years that ESG considerations do relate to financial returns.”
The loss at the district level is a setback, but the case will almost certainly be appealed to the Fifth Circuit. If the appeals court sides with the DOL, that could be devastating for the anti-ESG movement’s investment litigation. Should the precedent be set that ESG considerations do relate to financial returns, that is probably one of the final nails in the anti-ESG coffin. Especially if that decision comes from one of the country’s most conservative circuits.
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