Fifth Circuit Remands ESG Rule After Loper Bright Decision

August 13, 2024

On July 18, 2024, the US Court of Appeals for the Fifth Circuit (Fifth Circuit) vacated a trial court’s determination that DOL’s final rule enabling retirement plan fiduciaries to consider the potential financial benefits of investing in funds that take environmental, social and corporate governance (ESG) factors into account was not “manifestly contrary” to ERISA.

The Fifth Circuit rendered its decision in light of the US Supreme Court's decision to discard "Chevron deference" in Loper Bright v. Raimondo. "Chevron deference" had been a longstanding principle established by the Supreme Court in 1984 that required federal courts to defer to an agency’s interpretation of ambiguous statutory language so long as the agency applied a reasonable or permissible construction of the statute.

Because the trial court applied the now-obsolete Chevron deference doctrine to the DOL’s ESG rule, the Fifth Circuit remanded the case to the trial court for further review. Notably, the Fifth Circuit acknowledged that it could have chosen to review the ESG rule itself in the interest of expediting a resolution to the issue, but the court deemed it more appropriate for the trial court to first conduct its own review of the rule unencumbered by Chevron deference, after which it would consider the matter in turn on appeal.

In just a few weeks, the demise of the Chevron doctrine has already affected agency rulemaking pursuant to the ACA, as reported previously; agency rulemaking pursuant to the No Surprises Act, as discussed in an adjacent article; and agency rulemaking pursuant to ERISA, as discussed above. Employers should expect continued developments in this area as agencies and courts contend with administrative rulemaking in the post-Chevron era.

State of Utah et al. v. Su »