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January 30, 2023

Brad Campbell and Fred Reish Provide Insight on Suit Challenging DOL’s ESG Rule With ESG Clarity and InvestmentNews

In “DOL ESG Rule Hit With Long-Shot Lawsuit” ESG Clarity and InvestmentNews reported on the coalition of Republican state leaders and oil groups attempting to ban the United States Department of Labor’s (DOL) 2022 environmental, social and governance (ESG) rule. Benefits and executive compensation partners Brad Campbell and Fred Reish weighed in on the legal challenges.

“The Biden administration promulgated a very solid rule from an administrative perspective…. It would be very difficult to demonstrate that it wasn’t properly promulgated, said Campbell. He added that the DOL’s rule doesn’t require plan fiduciaries to consider ESG factors when selecting investments; it just allows them to. This puts the rule in line with laws that have been on the books since 1978, more so than rules finalized during the Trump administration in 2020 that were never enforced, Campbell added.

Campbell noted that, unlike the Trump-era DOL rule, the Biden administration’s rule does not single out specific investment types for extra scrutiny. “The Biden administration resisted the temptation to bias in favor of ESG…. It strikes me that the new rule is more consistent with the regulatory history than the 2020 rule was,” he explained.

Campbell commented that it will be difficult to convince the court to grant an injunction and will also be a challenge to argue that the plaintiffs have standing to bring their claim. He cited the example of a 2019 lawsuit filed by a handful of Democratic-leaning states seeking to block the Securities and Exchange Commission’s (SEC) Regulation Best Interest, which resulted in convincing only one of three appellate court judges on the panel that they had standing.

“Whether it’s the blue states suing the SEC or the red states suing the DOL, it’s very difficult for the states to argue that they have standing to address a regulation that preempts state law and is in the federal realm,” Campbell said.

“In other words, if an ESG factor is material to the risk and return analysis, it must be considered and given appropriate weight,” explained Reish. “It is hard to see a successful challenge to that concept.”

The full InvestmentNews article is available for subscribers.

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