Sustainable Finance Newsletter - A surprise ESG boost for Biden in Texas

By Ross Kerber

Sept 27 (Reuters) - U.S. politicians may fight until the end of time over the rules for the use of environmental, social or governance (ESG) investment considerations in retirement plans, given how guidance has shifted with each recent U.S. presidential administration.

But a striking Sept. 21 ruling by a Texas judge dealt a setback to a group of anti-ESG Republican attorneys general and could give plan sponsors more confidence in the status quo.

You can read about that matter below, plus links to other stories with ESG considerations including an SEC probe of Wall Street's private messaging and a look at the CEO-to-worker pay ratios of top automakers facing strikes.

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This week's most-read

* SEC collects Wall Street's private messages as WhatsApp probe escalates -sources

* Inside Vietnam's plans to dent China's rare earths dominance

* EU's bid to save bees stings sugar beet farmers

Biden's ESG investing rule gets a big boost in Texas

U.S. District Judge Matthew Kacsmaryk on Sept. 21 surprised some lawyers when he sided with President Joe Biden's administration and tossed out a lawsuit by Republican attorneys general who claimed a new rule on ESG investing would jeopardize trillions of dollars of U.S. retirement savings.

Kacsmaryk, an appointee of former Republican President Donald Trump in the Northern District of Texas, is known for siding with conservative positions such as an April ruling suspending approval of the abortion pill mifepristone.

This time he went in the other direction, in a ruling that is in line with how other Republican anti-ESG efforts have run aground. The case began in January when Utah Attorney General Sean Reyes and 24 other Republican AGs sued to undo a 2022 rule from Biden's Labor Department.

Among other things the rule, "Prudence and Loyalty in Selecting Plan Investments and Exercising Shareholder Rights," clarified that ESG considerations like the economic effects of climate change could be factored into a risk and return analysis by plan sponsors.

But the rule maintained the principle that fiduciaries could not accept lower returns in order to secure collateral benefits like lowering emissions, according to the Labor Department.

Republicans have tried to overturn the rule in Washington, forcing Biden to issue his first veto, and their legislative efforts continue.

In the suit, the attorneys general had argued the rule "undermines key protections" for some $12 trillion in retirement savings in the name of promoting ESG considerations.

But Kacsmaryk granted a Labor Department motion to dismiss, writing the rule does not violate the Employee Retirement Income Security Act or procedural law.

Kacsmaryk added that "While the Court is not unsympathetic to Plaintiffs' concerns over ESG investing trends, it need not condone ESG investing generally or ultimately agree with the Rule to reach this conclusion."

Ropes & Gray Partner Joshua Lichtenstein said people on both sides had expected Kacsmaryk to side with the plaintiffs, and that plan sponsors and fund firms now can have more confidence in the current rules.

"This lawsuit was viewed as the best chance the anti-ESG interests had in getting the rules struck down, and this is a big setback," he said.

K&L Gates Partner Lance Dial said he was less surprised but said the ruling showed how the Labor Department properly balanced concerns in constructing the new rule. For instance the Department did not require climate considerations to be deemed "presumptively material" in investment decisions, a possibility it asked about during the rulemaking process.

The Labor Department "showed restraint and hewed to the statute. That's why it can survive the challenge, even in a conservative leaning court," Dial said.

The plaintiffs have 30 days from the ruling to appeal.

A spokesman for Reyes told me "We are evaluating next steps, including potential appeal." A Labor Department spokesman said it was "pleased with the judge’s decision."

Company News

* Strikes ended at Chevron's big liquefied natural gas projects in Australia after a union alliance agreed to resolve disputes that had threatened to disrupt 7% of global supplies.

* Anti-obesity drugs have boosted the valuations of Novo Nordisk and Eli Lilly, but our columnists point out the same drugs could cut demand for products from McDonald's, Burger King, Nestle and Mondelez.

* In the biggest tech deal of the year, Cisco is buying cybersecurity firm Splunk for about $28 billion, underscoring the importance of subscription software revenue.

Automaker CEO pay ratios tick down

The huge ratio of CEO pay to workers' pay has been an issue in the ongoing strikes against U.S. automakers. FWIW company securities filings show that while the gap remains big, it came down at bit last year at Ford and GM as their median employees made more money after the pandemic and total CEO pay fell somewhat. But factors like changes in workers' pension value make this only a rough measure.

On my radar

* Law firm Allen & Overy calculates huge investments will be needed to meet the goals of the Paris Agreement, up to $7.3 trillion a year by 2050. But the money could also be a huge boost to global economic output.

* Potentially next week, Exxon Mobil is expected to provide a glimpse of its third quarter results in a filing with SEC. The prior quarter fell below analysts' expectations due to low natural gas prices and weak oil refining margins.

* The first U.S. Republican presidential debate featured hardly any discussion of the anti-ESG arguments that have been staples from several candidates, suggesting being "anti-woke" won't have much political traction. Let's see if the topic comes up more during tonight's second round.

(Reporting by Ross Kerber; Editing by David Gregorio)