Republican challenge to ESG investing rule could showcase risk to US agency powers
By Daniel Wiessner
July 8, 2024 11:17 AM EDT

July 8 (Reuters) - A challenge to a Biden administration rule allowing socially conscious investing by employee retirement plans will present an early test of how courts will scrutinize federal regulations after the U.S. Supreme Court said they no longer have to defer to the expertise of the agencies that issued them.

The New Orleans-based 5th U.S. Circuit Court of Appeals will hear arguments on Tuesday in a lawsuit by 25 Republican-led states challenging the U.S. Department of Labor rule, which says 401(k) and other plans can consider environmental, social and corporate governance (ESG) factors as a "tiebreaker" in making investment decisions.

U.S. District Judge Matthew Kacsmaryk in Amarillo, Texas, refused to block the 2022 rule last year, citing a 40-year-old doctrine known as Chevron deference, named for a 1984 Supreme Court case, which had directed courts to uphold agencies' reasonable interpretations of the laws they enforce.

Kacsmaryk, an appointee of Republican former President Donald Trump, is the lone active judge in Amarillo and his courthouse has become a favored venue for conservative litigants suing to block Biden administration policies. But in the challenge to the ESG rule, the judge said he was bound to apply Chevron until the Supreme Court overturns it.

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