"It clarifies that risk and return factors may include the economic effects of environmental, social, and governance factors where appropriate given the relevant facts and circumstances," the Justice Department said. "The rule thus places ERISA plan participants and beneficiaries on equal footing with other market participants."
In January, Republican attorneys general from the 25 states, co-led by Ken Paxton of Texas and Sean D. Reyes of Utah, filed a lawsuit arguing that the Labor Department's rule undermines key protections for retirement savers, oversteps the department's authority under the Employment Retirement Income Security Act, and is arbitrary and capricious.
But the Justice Department said the rule, which took effect Jan. 30, was needed to diminish the "chilling effect" on considering ESG factors after the Trump administration promulgated two rules that said retirement plan fiduciaries could not invest in "non-pecuniary" vehicles that sacrifice investment returns or take on additional risk and outlined a process a fiduciary must undertake when making decisions about casting a proxy vote.
In rescinding the two Trump-era rules and promulgating the new rule, "DOL reaffirmed, consistent with ERISA's statutory text, that fiduciaries' exclusive purpose must be to secure financial benefits for plan participants and beneficiaries, and that this purpose may never be subordinated to unrelated goals," the Justice Department added.
The states filed a motion for summary judgment last month and the Justice Department filed its own June 2.
The rule has faced heightened criticism in recent months from Republicans across the country and in Washington.
Led by congressional Republicans, lawmakers in the House and Senate passed joint resolutions in February and March, respectively, to nullify the rule under the Congressional Review Act. But on March 20, President Joe Biden vetoed the resolution and an effort to override the veto subsequently failed.