US judge will not block Biden rule on socially conscious investing

A federal judge in Texas on Thursday rejected a bid by 25 states to block a Biden administration rule allowing employee retirement plans to consider environmental, social and governance (ESG) issues in investment decisions.

U.S. District Judge Matthew Kacsmaryk in Amarillo, Texas, declined to block the rule, which took effect Jan. 30. The judge granted a petition by President Joe Biden's administration to dismiss the Republican-led states' lawsuit claiming the rule will jeopardize millions of Americans' retirement savings.

Kacsmaryk in a 14-page opinion rejected the states' claim that the rule violates the federal law governing retirement plans. The rule still requires that financial considerations come first, and does not create "an overarching regulatory bias in favor of ESG strategies," the judge wrote.

The U.S. Department of Justice and the offices of the attorneys general of Texas and Utah, who led the lawsuit, did not immediately respond to requests for comment.

The decision will likely be appealed to a New Orleans-based federal appeals court. A subsidiary of oil drilling company Liberty Energy Inc (LBRT.N) and an oil and gas trade group are also plaintiffs in the case.

Congress in early March passed a Republican-backed resolution to repeal the rule. Biden, a Democrat, vetoed the proposal on March 20.

ESG investing involves weighing companies’ records on environmental, social justice and labor issues, as well as corporate governance matters such as board diversity and executive compensation, along with traditional financial considerations.

The rule, finalized in November, reversed restrictions adopted by former President Donald Trump's administration on considering ESG factors in making investment decisions. The rule covers plans that collectively invest $12 trillion on behalf of more than 150 million people.

The Biden administration has said the rule was needed to replace improper limitations on ESG investing imposed by the Trump administration, because issues such as climate change and social justice can impact companies' long-term financial health.

Kacsmaryk, a Trump appointee, in March rejected the Biden administration's claim that the states were improperly "judge shopping" by filing the lawsuit in Amarillo, where Kacsmaryk is the only judge.