Excluding ESG: Biden Sustainable Investing Rule Overturned
June 2, 2025
A rule from former US President Joe Biden’s administration permitting retirement plans to consider ESG factors when selecting investments will be scrapped by the Department of Labor (DOL).
According to a filing with the US 5th Circuit Court of Appeals last week, the DOL now plans to issue a new rule on retirement plan fiduciaries being able to consider ESG factors when selecting plan investments.
The creation of the new rule is expected to be fast tracked by the DOL, with further details anticipated in the Trump administration’s spring regulatory programme.
“The Department has determined that it will engage in a new rulemaking on the subject of the challenged rule,” the letter outlining the decision read. “This rulemaking will appear on the Department’s Spring Regulatory Agenda, and the Department intends to move through the rulemaking process as expeditiously as possible.”
The Prudence and Loyalty in Selecting Plan Investments and Exercising Shareholder Rights rule enabled retirement fund managers to take ESG factors into account in the case of a tiebreaker between two financially equal investment options.
The rule, which was finalised in January 2023, has been controversial since it was proposed in 2021. It overrode a regulation from Donald Trump’s first term as president which had virtually halted retirement plans from selecting ESG funds for their investments by only permitting pecuniary factors to be considered in funding decisions.
While dissatisfaction over the rule has overwhelmingly come from Republicans, a bipartisan challenge of the rule in March 2023 forced then-President Biden to use the first veto of his presidency.
In April, that the US DOL had requested that the Fifth Circuit Court of Appeals suspend litigation over the rule. This was despite Trump-appointed Republican judge Matthew Kacsmaryk having previously dismissed the lawsuit two times; first in September 2023 and most recently in February this year.
The rule was challenged by US 5th Circuit Court of Appeals in court by 26 attorneys-general of Republican-led states. The US 5th circuit has jurisdiction over federal district courts in Louisiana, Mississippi and Texas, all of which voted Republican during the 2024 presidential election.
The attorneys claimed that the rule violated the 1974 Employee Retirement Income Security Act (ERISA), as well as undermining key protections for the retirement savings of over 150 million employees.
Last week, Conservative economists added to the calls for the rule to be scrapped, urging the Trump administration’s Department of Government Efficiency to take action and rescind it.
In recent months, executive orders issued by Trump have targeted the environmental and energy sectors. This included April’s Protecting American Energy for State Overreach executive order. The order directed Attorneys General to identify State laws aiming to tackle climate change or involving ESG initiatives and take “all appropriate action” to stop the enforcement of such laws they deem to be illegal.
Ahead of last year’s election, right-wing political initiative The Heritage Foundation’s controversial Project 2025 had called for the rule to be rescinded as part of a chapter on the DOL.
The document called for ESG considerations to be removed from ERISA, branding them as being “unrelated to investor risks”. It added that the DOL should prohibit investing in ERISA plans on the basis of any factors that are unrelated to investor risks and returns.
In January, a Texas federal judge ruled that American Airlines Group had contravened its fiduciary duties of loyalty to retirees by selecting BlackRock as its asset manager. The judge deemed BlackRock’s consideration of environmental factors in managing retirement plans to have breached the ERISA requirement to prioritise the best interests of plan members.
Companies have responded to the intensified focus on scrutiny of ESG under Trump according to a report released last week by nonprofit think tank The Conference Board. The report surveyed 125 senior sustainability and ESG executives at US and multinational companies, finding that 80% adjusting their ESG policies to navigate growing political and legal risks.
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Last Updated: 2 June 2025