The Trump administration has taken a step forward to reverse a key ESG investment rule that came into effect under President Biden. The investment rule allowed retirement fund managers to consider environmental, social, and governance (ESG) factors in investment decisions.
Asset managers, private equity funds offering 401(k)-eligible products, and institutional investors may consider beginning the reassessment of their product labeling, risk disclosures, and investment frameworks now. Regulatory pushback could constrain how ESG products are marketed and integrated into U.S. retirement channels.
Let’s explore the elimination of the ESG retirement rule in detail.
Background on ESG retirement rule for managers
In 2023, the Biden administration introduced a rule that let retirement plan managers—like those handling 401(k)s—consider ESG factors in their investment decisions, but only if they were financially relevant. They could also use ESG insights when voting as shareholders and as a tiebreaker when two investments looked equally strong financially.
The goal was to give managers more flexibility. But the rule quickly sparked criticism. Opponents said it mixed politics with investing and could put retirement savings at risk. Twenty-six Republican-led states sued, arguing it broke ERISA rules.
President Biden blocked a Senate effort to repeal it, and a court upheld the rule in 2024. However, the return of the Trump administration in 2025 brought fresh momentum to roll it back and restrict ESG in retirement investing.
The reversal of the Trump administration
In June 2025, the Trump administration withdrew legal defense of the Biden ESG rule. It signaled its intent to introduce a new regulation that would strictly limit fiduciaries to “pecuniary-only” factors—mirroring the ESG restrictions introduced during Trump’s first term.
The Department of Labor (DOL) informed the 5th Circuit Court of Appeals that it would begin new rulemaking, expected to appear on the spring 2025 regulatory agenda. If finalized, the new rule would:
- Prohibit consideration of ESG factors unless they directly affect risk or return.
- Restrict proxy voting activity linked to ESG issues.
- Reinstate a more narrow interpretation of fiduciary duty under ERISA.
In parallel, House Republicans have reintroduced the “Protecting Prudent Investment of Retirement Savings Act (H.R. 2988),” a bill to permanently codify the pecuniary-only standard.
What’s next?
The Department of Labor is in the early stages of proposing a new rule. Once released, the regulation will undergo a formal notice-and-comment period, during which stakeholders can provide feedback. Given the politicized nature of ESG in the U.S., the rule is expected to face intense public scrutiny and potential legal challenges, regardless of its final form.
Read the full court docket here.
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