/>iUnder the Biden Administration, the Department of Labor ("DOL") had issued a rule that permitted ESG factors to be considered when making investments on behalf of 401(k) plans. (This rule had replaced an earlier one from the first Trump Administration that had expressly forbidden that practice.) Despite lawsuits questioning the validity of the rule, and the demise of the Chevron doctrine (that afforded greater judicial deference to agency decision), the Biden Administration's DOL rule had nonetheless survived these legal challenges. (In part, this may be due to the fact that the conservative federal court judge in Texas presiding over the case had determined that the rule--enabling ESG factors to be considered as a “tiebreaker”--would have little practical impact.) However, the demise of this Biden Administration policy, despite the successful defense of this initiative in the courts, is now certain. On May 28, 2025, lawyers from the Trump Administration's Department of Justice officially reported to the Fifth Circuit Court of Appeals (the court currently exercising jurisdiction over the legal challenge) that the “Department [of Labor] has reported that it will engage in a new rulemaking on the subject of the challenged rule”--in other words, the Biden Administration DOL rule will soon be replaced by a new rule that will likely prohibit the consideration of ESG factors when investing 401(k) plans.
This development is not especially surprising, and reflects the regulatory reversal between Republican and Democratic administrations. Nevertheless, it is still significant, as it demonstrates the continuing salience of ESG and its financial implications on the policy disputes between the political parties in the United States.
The Trump administration will replace a controversial Biden-era rule permitting companies that sponsor workplace 401(k)s to consider eco-friendly factors when picking and choosing investments on behalf of workers and retirees. Lawyers for the government filed a status report Wednesday telling the US Court of Appeals for the Fifth Circuit it will engage in rulemaking set to appear on the US Labor Department’s spring regulatory agenda. A notice-and-comment rulemaking process would be required to rescind the rule altogether. The Biden rule’s demise marks an escalation in Republican efforts to root out environmental, social, and corporate governance investing from the federal as well as state and local governments. The rule served as a proxy for conservative ire against “woke” Wall Street activity under Biden, who had to exercise his veto power in 2023 against a bipartisan attempt to axe the rule ....
