DOL’s ESG investing rule challenge sent back to lower court, post 'Chevron' fallout
Because of the recent Supreme Court decision to overturn 40 years of federal agency deference, the appellate court ruled that the ESG case should go back to the Texas judge who originally heard the case.
The Labor Department’s ESG rule, which took effect on Jan. 30, 2023, ended a Trump-era ban on retirement investment managers considering ESG factors. Then, 26 GOP-led states argued to a federal appellate panel July 9, 2024 to get the rule overturned. However, now that the Supreme Court overturned the Chevron case June 28, which affects how federal agencies defer cases where Congressional statutes are ambiguous, the ESG case has now been sent back to the Texas district court.
“Given the upended legal landscape, and our status as a court of review … we vacate and remand so that the district court can reassess,” said the court.
Now, the DOL’s rule, which allows retirement fund managers to consider environmental, social and governance factors, will argue before the Texas Northern District Court, the 5th Circuit Court of Appeals ruled last week. Two energy companies have now joined the 26 attorneys general from Republican-controlled states.
Even though the 5th Circuit judges appeared ready to reverse the ruling, they instead ruled July 18 that the case should go back to the Texas judge who originally heard the case.
The Chevron doctrine, so-called for its establishment in a 1984 Supreme Court decision, required that federal courts be deferential to federal agencies’ interpretations of ambiguous language. However, on June 28, in a landmark case – Loper Bright Enterprises v. Raimondo, Secretary of Commerce – the Chevron Doctrine no longer applies to cases involving rulemakings of the federal government.
Related: House GOP members attempt to overturn DOL’s ESG rule, again
The DOL rule has been challenged since it took effect last year. Shortly after the DOL’s Employee Benefits Security Administration finalized its ESG rule, the GOP attorneys general filed their lawsuit. In March 2023, the House and Senate voted to block the sustainable investing rule, which was then vetoed by Pres. Biden – the first veto of his presidency.
Now, the Texas court will re-hear the challenge to the DOL rule on ESG investing, without relying on Chevron deference.