In response to a lawsuit filed by GOP-led state attorneys general that seeks to kill a proposed Department of Labor ESG rule, the American Retirement Association (ARA) and nonprofit sustainable organization Ceres have filed a brief, asking a federal judge to reject the lawsuit by the attorneys general.

The DOL’s socially-conscious investing rule is “faithful to the letter and spirit of [Employee Retirement Income Security Act] ERISA and is consistent with decades of prior Department of Labor guidance” and should be upheld in the face of a legal challenge, the American Retirement Association said in a brief filed.

The ARA, which represents the employer-sponsored retirement plan industry, joined with Ceres, an organization that promotes sustainability in investing, to support the rule as it faces a legal challenge from 25 Republican-led state attorneys general. Their amicus brief, filed Oct. 23 in the US District Court for the Northern District of Texas, praises the ESG rule.

“Nowhere does ERISA declare that particular investment opportunities are more promising than others, or that some investment risks are more serious than others, or that certain risks are inconsequential,” the brief said. “Likewise, nowhere does ERISA bestow such prophetic powers on the DOL.”

The DOL’s ESG rule has been challenged since it took effect Jan. 30, 2023. 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 President Biden – the first veto of his presidency.

The ESG rule 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.

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, the Chevron Doctrine no longer applies to cases involving rulemakings of the federal government.

The ARA is an umbrella organization of 30,000 members with five affiliate groups – ASPPA, ASEA, NAPA, NTSA and PSCA – representing retirement plans and retirement services. Ceres advocates sustainable investing policies among more than 220 institutional investors.
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Related: DOL’s ESG investing rule challenge sent bac to lower court, post ‘Chevron’ fallout

The ARA and Ceres also warned, in their brief, that “an outright bar or across-the-board limitation on considering environmental, social or governance factors even as part of a risk-return analysis — urged by plaintiffs — flouts the letter and spirit of ERISA and have far-reaching consequences.”