• The Trump administration has officially ended its defense of the Biden-era ESG investment rule, signaling a regulatory reversal.
• The Department of Labor has been directed to reconsider and potentially rescind the ESG rule, pending updates in the spring regulatory agenda.
• The legal and political battle over ESG in retirement planning continues, with significant implications for fiduciary investment discretion under ERISA.

The Trump administration has taken formal steps to reverse a key ESG investment rule enacted under President Biden, which allowed retirement fund managers to consider environmental, social, and governance (ESG) factors in investment decisions.

A new filing with the 5th Circuit Court of Appeals confirms the administration has ceased its legal defense of the rule. The Department of Labor (DOL) has been instructed to replace it with a new regulation.

“On April 25, the government informed the Court that the Department of Labor had determined that it intended to reconsider the rule that is challenged in this case, including by considering whether to rescind the rule,” wrote Daniel Winik, Labor Department Attorney.
“On April 28, the Court directed the government to inform the Court ‘what specific actions the Department will take, if any, as a result of its reconsideration of the challenged rule – either to maintain the rule or to rescind it’.”

The current rule, finalized in 2023, gives fiduciaries for ERISA plans the flexibility to consider ESG criteria when making investments—provided those criteria are financially relevant. It also allows fiduciaries to apply ESG insights when exercising shareholder rights, such as proxy voting, if those actions align with risk-return objectives.

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During Trump’s first term, ESG considerations were limited strictly to “pecuniary factors,” a stance criticized by the DOL at the time for “unnecessarily restrain[ing] plan fiduciaries’ ability to weigh [ESG] factors when choosing investments, even when those factors would benefit plan participants financially.”

The Biden-era policy was designed to provide fiduciaries with flexibility in cases where two investments are financially equivalent. It has faced significant political and legal pushback. Twenty-six Republican-led states, led by Texas, filed suit claiming the rule put the retirement security of over 150 million workers at risk. The Senate voted to repeal the rule, a move Biden vetoed in 2023.

In a notable legal defense earlier this year, U.S. District Judge Matthew Kacsmaryk—appointed by Trump—upheld the rule, arguing that opposition was rooted in “wooden textualism that courts should endeavor to avoid.”

Further clarity on the DOL’s approach is expected in its forthcoming spring regulatory agenda. For now, the future of ESG investing in retirement plans remains uncertain, as the rule’s rollback progresses.

Read the court dockets here.

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