Environmental, social, and governance (ESG) investing has continued to be the subject of increasing regulatory, legislative, and litigation scrutiny. The scrutiny has accelerated following the results of the 2024 US federal elections.
This piece provides a summary of recent updates related to ESG investing.
One area where ESG has been a focus is retirement plan investing, including by private US retirement plans governed by the Employee Retirement Income Security Act (ERISA). Three recent updates are notable:
DOL's ESG Rule Challenged
The US Department of Labor’s (DOL’s) 2023 regulation on selecting plan investments and exercising shareholder rights, widely referred to as the “ESG Rule,” has survived a challenge by 26 state attorneys general in federal court. The suit was filed in federal district court in Texas and sought to have the ESG Rule set aside on the basis of being outside the DOL’s authority, as well as being arbitrary and capricious. However, the district court rejected those arguments, finding the ESG Rule falls within the DOL’s authority and is neither arbitrary nor capricious.
The trial court decision was appealed to the US Court of Appeals Fifth Circuit Court of Appeals, where oral arguments were heard mere days after the US Supreme Court’s landmark decision in Loper Bright Enterprises v. Raimondo, which limited the degree to which federal courts may defer to certain executive agency interpretations of law. The Fifth Circuit remanded the case to the federal district court for consideration in light of the Loper Bright ruling.
On February 14, 2025, the federal district court issued an opinion once again upholding the ESG Rule, concluding that Loper Bright did nothing to change the standard of review for an agency rulemaking action (as opposed to an agency interpretation of a statute).
DOL ESG Rule Under the New Administration
However, questions remain about the ESG Rule’s long-term prospects under the current administration. As it did in 2020 with the issuance of the Trump-Pence administration’s version of the ESG Rule, the DOL (under the current administration) is expected to revise or reinterpret the existing rule to discourage or prohibit the use of non-pecuniary ESG factors in ERISA plans. Indeed, on April 21, the DOL stated in a motion to the Fifth Circuit that the department has “determined that it intends to reconsider the challenged rule, including by considering whether to rescind the rule.”
There have also been efforts in the US Congress to amend ERISA to achieve the same result. For these reasons, it is widely expected that the present version of the ESG Rule will soon be gone and replaced with an interpretation that is skeptical of the role of ESG investing in ERISA plans.
Finally, it should be noted that many expect the DOL may open investigations under its civil investigator enforcement program into ERISA plan investing that involves ESG considerations—just as occurred in the Trump-Pence administration.
Private ERISA Plan Liability
While the DOL ESG Rule faces ongoing scrutiny, litigation has also emerged challenging ESG investing under ERISA. In one recent case, a court found liability based on the theory that plan fiduciaries failed to adequately monitor an asset manager that allegedly pursued non-financial and nonpecuniary ESG policy goals through proxy voting and shareholder activism; the claim argued (and the court found) that this focus harmed the plans’ investment interests.
This case is significant for (1) finding that non-pecuniary ESG investing violates ERISA and (2) because the liability stemmed in large part from proxy voting and engagement activities. This is in line with the trend of an increasing focus on whether proxy voting based on ESG factors is improper, which is discussed in more detail below.
Another area of continued focus on ESG investing is with respect to state-level rules regulating ESG investing and actions by state officials.
New State-Level ESG Investing Rules
Most, but not all, of these rules regulate state assets such as public retirement plans investing. As of April 1, 2025, states that have adopted rules generally limiting ESG investing include Alabama, Arkansas, Florida, Georgia, Idaho, Indiana, Kansas, Kentucky, Louisiana, Montana, North Carolina, North Dakota, Ohio, South Carolina, Tennessee, Texas, Utah, West Virginia, and Wyoming. In contrast, states with rules more favorable to ESG investing include California, Colorado, Illinois, Maine, and Maryland. Additionally, Illinois and New Hampshire have implemented ESG disclosure rules.
There are several types of state ESG-related rules, including rules that
In 2024, several states continued to adopt ESG-related rules, including Georgia (House Bill 481), Idaho (Senate Bill 1291), and Ohio (Senate Bill 6). Most recently, in 2025, Wyoming enacted new legislation prohibiting ESG considerations, which includes a notable provision regulating proxy voting, part of a broader trend of increased scrutiny over proxy voting practice.
However, even with these rules in place, some retirement systems have limited their application. For example, in Oklahoma and Kentucky, public employee retirement systems have granted fiduciary exemptions to large asset managers and otherwise limited their states’ blacklists.
State-Level Climate Disclosure Rules
In October 2023, California passed SB 253 and SB 261, two landmark climate disclosure laws.
Following California’s lead, in 2024 and 2025, several states introduced (or, in some cases, reintroduced) similar or nearly identical bills to California’s climate-related disclosure rules, which would require certain ESG-related disclosures. These legislative proposals include
These state rules have drawn the attention of the current administration, which recently issued an executive order titled Protecting American Energy from State Overreach, which directs the removal of legal restrictions imposed by state laws and policies related to climate change that are deemed unconstitutional or preempted by federal law. It further directs the US Attorney General (AG) to identify and challenge state and local laws deemed to hinder the development and use of domestic energy resources, particularly those addressing ESG issues.
Other State-Level ESG Investing Activities
In addition to legislative efforts, some states have also sought to effect ESG investing activities through other actions. For example, in late 2023, the Tennessee AG filed a consumer protection lawsuit allegedly that one asset manager engaged in “false or misleading representations” to consumers about ESG strategies and how much they affected investment decisions.
Additionally, in late 2024, three large financial services firms were sued by the State of Texas and 10 other Republican-led state AGs for allegedly violating antitrust laws.
More recently, on January 27, 2025, Republican AGs issued a formal letter to several global banks warning that their commitments to ESG initiatives may violate state and federal law and lead to enforcement action. In response, state financial officials from 17 Democrat-led states sent an open letter to the US Securities and Exchange Commission (SEC) and the DOL denying that ESG investing is at odds with ERISA’s fiduciary duties. The open letter argues that certain ESG considerations, such as “risks related to governance failures, workforce management, regulatory changes, and climate impacts” can “materially impact long-term financial performance” and therefore are appropriate factors to consider when making retirement investment decisions.
Antitrust considerations have also become a key area of focus in the ESG investing landscape. A June 2024 interim staff report from the US House Judiciary Committee framed ESG collaborations as a form of anti-competitive collusion, alleging that financial institutions and advocacy groups are coercing companies into decarbonization initiatives that ultimately harm consumers. A December 2024 follow-up report referred to this collaboration as a “climate cartel.” A Democratic rebuttal, however, asserted that ESG initiatives are voluntary, market-driven responses to investor demand and fall within existing antitrust law.
These antitrust issues are also playing out at the state level, as evidenced by a January 27, 2025 Republican AG letter sent to several global banks warning that their commitments to ESG initiatives may violate state and federal laws and could lead to enforcement actions.
As noted above, Texas has filed an antitrust lawsuit, joined by nearly a dozen Republican-led states, against several asset managers. The suit argues that the firms used their substantial stock holdings in certain coal companies to artificially constrict the coal market. The firms have been accused of forming an anticompetitive “climate cartel” that substantially lessened competition and thus violated antitrust laws. Recently, two leading financial industry groups submitted amicus briefs arguing that a decision favoring the states would harm publicly traded companies as well as investors. These state actions signal a growing willingness by states to challenge ESG-focused investment strategies on antitrust grounds.
In response to these mounting political and legal pressures, many asset managers have reassessed their participation in various ESG coalitions, with major firms announcing their departure from such initiatives as the Climate Action 100+ and Net Zero Asset Managers Initiative.
Oversight of proxy voting and related engagement activities has become an increasingly prominent front in the broader debate over ESG investing, as illustrated by the ERISA case noted above, which focused heavily on proxy voting practice.
In another recent example, Florida’s AG announced in March 2025 an investigation into two major proxy advisory firms related to their voting policies. The AG described the investigation as focusing on potential misrepresentations related to the firms’ approaches to ESG and DEI in proxy voting. The AG identified that this might violate Florida’s Deceptive and Unfair Trade Practices Act of 2023, which prohibits the use of ESG factors in state and local government investment decisions and contracting, as well as unlawful collusion in violation of the Florida Antitrust Act of 1980.
Around the same time, the House Judiciary Committee extended its antitrust probe to include proxy advisory firms. And recently, major proxy advisory firms like Institutional Shareholder Services (ISS) and Glass Lewis updated their guidelines to clarify how ESG-related factors will be considered in voting recommendations. These updates reflect the evolving regulatory and political landscape around proxy voting.
The SEC recently indicated that it would stop defending its own climate-change disclosure rule in court. Additionally, recent guidance from the SEC will impact shareholders’ ability to file beneficial ownership reports on the shorter Schedule 13(g) form, as opposed to the longer Schedule 13(d) form, with the former requiring substantially less disclosure. A shareholder’s engagement with an issuer’s management on particular issues, including ESG, may jeopardize the shareholder’s eligibility to report on Schedule 13(g), thereby requiring disclosure under the longer schedule 13(d). This move has been viewed as signaling future SEC regulatory scrutiny of engagement activities by shareholders, especially on ESG issues.
In short, ESG investing continues to evolve under intense legal, legislative, and political scrutiny. In this rapidly changing legal landscape, staying informed of both federal and state developments, as well as enforcement trends, is critical to mitigating potential liabilities.
We stand ready to assist in navigating this ESG landscape. If you require assistance, please reach out to the author of this post or your primary Morgan Lewis contact.
Law clerks Yara Ismael, Niki Nguyen, and Barbara de Alfaro contributed to this Insight.
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