Biden's ESG Rule Faces Crucial Test in Conservative 5th Circuit

A legal challenge against the Biden administration's rule permitting socially conscious investing by employee retirement plans will test how courts evaluate federal regulations post the Supreme Court's directive to use independent judgment over agency expertise. The case in the 5th U.S. Circuit Court of Appeals could significantly impact future government regulation efforts.

The Biden administration's rule allowing 401(k) and other employee retirement plans to consider environmental, social, and corporate governance (ESG) factors is under scrutiny in the 5th U.S. Circuit Court of Appeals. The appeal follows a Supreme Court ruling instructing courts to exercise independent judgment rather than defer to agency expertise.

The lawsuit, initiated by 25 Republican-led states, challenges the U.S. Department of Labor's ESG rule. Despite a previous district court decision upholding the rule based on Chevron deference, new Supreme Court guidance suggests courts should make independent evaluations of agency regulations.

The outcome of this case could reshape the landscape of federal regulatory power, especially with the $12 trillion investment at stake for plans affected by the rule. Legal experts speculate that the conservative-leaning 5th Circuit may likely vacate the ESG rule.

(With inputs from agencies.)