The new legislation seeks to repeal the Biden-era Department of Labor rule issued in December 2022 that allowed plan fiduciaries to consider climate change and other ESG factors when they select retirement investments.

However, Rep. Mark DeSaulnier (D-CA), who is the subcommittee’s ranking Democrat, contended that ESG factors should be considered when choosing investments. “If a company is exposed to certain risks — such as sea level rise because of climate change, child labor violations, a record of poor corporate governance or mistreating workers — its stock could suffer over time,” Rep. DeSaulnier said. “Retirement plan professionals must consider a long-term horizon when making investment decisions, as workers often contribute for decades before drawing down on what they save.”

The DOL’s ESG rule, which gives fiduciaries the ability to utilize ESG factors when choosing investment funds, has been challenged since it took effect Jan. 30, 2023. The rule allowed that retirement fund managers may consider ESG factors when choosing investment funds. The case was brought back to the appeals court after a federal district judge ruled for the second time that the ESG rule was permissible under the ERISA.

Shortly after the DOL's Employee Benefits Security Administration finalized its ESG rule, GOP attorneys general filed a lawsuit, alleging that the 2022 Rule “undermines key protections for retirement savings of 152 million workers—approximately two-thirds of the U.S. adult population and totaling $12 trillion in assets—in the name of promoting environmental, social, and governance (‘ESG’) factors in investing, including the Biden Administration’s stated desire to address climate change.

The challenge was denied twice, most recently in February. In March 2023, the House and Senate voted to block the sustainable investing rule, which was then vetoed by President Biden – the first veto of his presidency.

The ESG rule ended a Trump-era ban on retirement investment managers considering ESG factors. The GOP-led states argued to a federal appellate panel July 9, 2024 to get the rule overturned. However, now that the Supreme Court overturned the Chevron case last year, which affects how federal agencies defer cases where Congressional statutes are ambiguous, the ESG case was sent back to the Texas district court.

Related: Judge rejects GOP-led challenge to Biden-era ESG 401(k) investing rule

Under the ESG rule, achieving the highest rate of return needs to be the main consideration for plan fiduciaries when making investment decisions, but when two options offer equivalent return rates, a plan sponsor can use ESG considerations as a “tiebreaker.”

In March, the Securities and Exchange Commission voted to stop defending its climate risk disclosure rule, which required companies to disclose certain climate-related risks. Last month, the Trump-led DOL asked the Fifth Circuit Court overseeing the litigation challenging the ESG rule to suspend the ongoing proceedings.