Texas Atty. Gen. Ken Paxton
An alliance of two hundred companies engaged in oil and natural gas exploration and production has joined with the attorneys general of 25 states in a lawsuit seeking to stop a new Biden Administration rule allowing retirement account managers to invest in Environmental, Social and Governance (ESG) efforts, even if they’re not the most profitable for their clients.
The complaint, filed in Texas, seeks a preliminary injunction and permanent relief, in the form of a declaration that the ESG rule violates both the Administrative Procedure Act (APA) and Employee Retirement Income Security Act (ERISA) and is arbitrary and capricious.
“This rule is an affront to every American concerned about their retirement account. The fact that the Biden Administration is now opting to risk the financial security of working-class Americans to advance a woke political agenda is insulting and illegal,” Texas Attorney General Ken Paxton, who is co-leading the lawsuit, said in a press release announcing the complaint:
“The rule authorizes fiduciaries to consider nonfinancial factors when administering trust assets, likely leading many to focus on advancing an ESG agenda instead of achieving long-term financial stability for their clients. Beyond being detrimental to the retirement accounts of hardworking Americans, the rule is fundamentally unlawful, as well as arbitrary and capricious.”
“The Biden Administration is promoting its climate change agenda by putting everyday people’s retirement money at risk,” Utah Attorney General Sean D. Reyes said in a statement:
“Americans are already suffering from the current economic downturn. Permitting asset managers to direct hard-working Americans’ money to ESG investments puts trillions of dollars of retirement savings at risk in exchange for someone else’s political agenda.”
The 25 attorneys general are joined in the lawsuit by the Western Energy Alliance, which represents mostly small businesses in the oil and natural gas industry. The Alliance warns that the ESG rule not only hurts investors’ retirement account balances, but also intensifies the Biden Administration’s ongoing war on domestic energy:
“Western Energy Alliance joined 25 states in challenging this rule because it is one of many the Biden Administration is moving forward with as a means of de-financing American oil and natural gas companies. The administration continues its drive to put American oil and natural gas out of business even as the president turns to Venezuela and Saudi Arabia to increase their production.”
“The rule raises ESG and climate change factors above maximizing returns for pension plans and 401(k)s,” said Kathleen Sgamma, president of the Alliance. “Data continue to emerge that ESG investing is highly politicized and delivers lower returns. DOL’s rule would cause retirees and employees to end up with significantly lower income in retirement, all for purposes of a one-sided political agenda.”
The lawsuit is being considered by a court that has vacated a similar rule in the past, Bloomberg Law notes:
“The case is now within the ultimate purview of the US Court of Appeals for the Fifth Circuit, which in 2018 vacated a major DOL rule redefining an investment advice fiduciary under the Employee Retirement Income Security Act of 1974 (Pub.L. 93-406). Like Thursday’s suit, plaintiffs challenging the fiduciary rule accused EBSA of exceeding its statutory authority by proffering an arbitrary and capricious rule.”
Asset managers have been increasing putting companies’ ESG, and especially climate change, policies ahead of their profit potential when choosing investments for their clients, Fox Business reports:
“Over the past few years, massive asset managers and financial institutions have increasingly focused on prioritizing ESG factors when making key investment decisions. They have particularly set their sights on investing in companies based on those companies’ efforts to combat climate change and curb their carbon footprints.
“Companies like BlackRock, State Street, and Vanguard, which collectively manage trillions of dollars in assets, have taken lead roles in the ESG movement. In response to the growing movement, Republican state attorneys general and financial officers have fought back, canceling contracts with the firms and threatening legal action over how they handle customers’ investments.”
According to the complaint, ERISA covers approximately 747,000 retirement plans, 2.5 million health plans, and 673,000 other welfare benefit plans. Employee benefit plans cover about 152 million workers, and more than $12 trillion in plan assets, equivalent to more than half of the nation’s gross domestic product, the complaint notes.