Compliance February 23, 2023

Legal Complaint Says DOL’s ESG Rule “Jeopardizes” Retirement Savers

A second lawsuit in less than a month has been brought challenging the legality of the DOL’s rule concerning ESG in retirement plans.

Reported by


The Wisconsin Institute for Law and Liberty, a conservative nonprofit law firm, brought a lawsuit Tuesday in the District Court for the Eastern District of Wisconsin challenging the Department of Labor’s recently enacted rule permitting the use of environmental, social and governance investment strategy in retirement plans. The complaint alleges that the rule “unlawfully politicizes the retirement system.”

The plaintiffs in the lawsuit are two defined contribution plan participants in Wisconsin: Richard Braun, an operations manager for SWAT Environmental, and Frederick Luehrs III, a maintenance supervisor at Petron Corporation.

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Like a similar lawsuit brought against the DOL in January, this one alleges that ESG is a “non-pecuniary” factor which prioritizes political considerations over risk and return, at the expense of retirees’ finances and to the benefit of political causes.

Different from the first lawsuit filed against DOL on this issue, verbiage indicating general disregard for ESG appears throughout the complaint. ESG is dismissed as an “investing fad” and said to be designed to promote “left-leaning political causes.” In a statement regarding this lawsuit from Kate Spitz, one of the WILL attorneys representing the plaintiffs, Spitz said “By injecting highly partisan issues—like climate change and racial justice—into investment strategy, the Biden Administration is jeopardizing the retirement income of over 140 million Americans.”

This complaint also emphasizes the removal of documenting requirements. A previous DOL rule from 2020 under President Donald Trump’s administration said that non-pecuniary factors could only be considered as a tiebreaker between two investments if those investments were otherwise indistinguishable and if the plan documented why pecuniary factors were insufficient. The new rule allows non-pecuniary factors to be used if two investments would both equally serve the interests of the plan—seen by investment managers and ERISA attorneys as a lower bar—and has no documentary requirement.

The plaintiffs allege that dropping this documentary requirement allows plans to justify politically-informed investing choices using hindsight if they ever face litigation, rather than rely on their documented reasoning at the time the decision was made. This would have the effect of making it harder for participants to sue sponsors who use ESG considerations in investment selection, they argue, because there would be no paper trail documenting the plan’s decisionmaking, allowing for post hoc justifications.

The complaint ultimately requests that the court temporarily suspend the rule and then permanently enjoin the DOL from enforcing it and promulgating similar ones in the future.

WILL also signed on to a coalition letter earlier this month. The letter likewise dismisses ESG as a political agenda masquerading as an investment strategy. The letter states: “Rather than prioritize the financial well-being and stability of retirees, ESG seeks to advance ideological goals related to environmental policy and other divisive subjects.”

Among other signatories, the letter was signed by members of the fossil fuel industry—including four state coal alliances—and a number of nonprofits financed in part by the Koch brothers, including the Leadership Institute and Americans for Prosperity.

Data & Research February 23, 2023

CAPTRUST Survey Shows Nonprofits Ignore Benefits of Select Investments

New research shows organizations often overlook alternative assets, ESG and DEI.

Reported by


Nonprofit organizations consistently ignored the benefits of alternative investments, environmental, social, and governance investing and diversity, equity, and inclusion initiatives, according to CAPTRUST’s 2022 Endowment and Foundations Survey.

Of 169 nonprofit organizations surveyed by CAPTRUST, 37% did not allocate resources to alternative investments, with 10% of those reporting that they did not see a benefit in doing.  

“With a range of strategies available and numerous potential rationales for investments, many nonprofits may benefit from exploring this asset class,” CAPTRUST Director James Stenstrom wrote in the report. 

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However, alternative assets ranked first among asset allocations organizations most expect to increase, with 82% of organizations expecting to increase their allocation. Only 18% of organizations expected their allocation to alternative assets to decrease. Alternative investments presented the most lopsided expectation compared to the other asset allocations with less interest, such as cash, domestic equity, fixed income and international equity.  

ESG As Detractor 

Organizations that adopted ESG versus those that did not have significantly contrasting attitudes towards mission-aligned investments, according to CAPTRUST. Nonprofits that had not adopted ESG were 3.4 times more likely to think the initiative would detract from their performance.  

The most common obstacle for organization’s adopting ESG was potential performance impact, as reported by 32% of respondents. This was followed by 26% of organizations citing the inability to track specific impacts as a barrier. Overall, the number of nonprofits allocating to ESG decreased in 2022. 

Both groups, however, expected their organization to adopt ESG in the future, with 28% expecting an increase and only 6% expecting a decrease.  

Respondents identified anti-pornography as the top personal priority guiding their ESG, impact, and mission-aligned investment. This was followed by pro-racial minority equity, pro-religion, Pro-human/worker’s right 

DEI Not a Focus 

CAPTRUST also found foundations and endowments were faltering on their DEI efforts. Although 82% said DEI increases effectiveness, the initiative was ranked as the lowest concern by a wide margin. Eighty percent of respondents felt neutral, low concern or extremely low concern about DEI.  

Furthermore, 96% of nonprofits said they prioritized DEI when recruiting for their boards, but only 16% had any diverse board members. Overall, diverse talent represented only 6% of all boards.  

“Our largest survey effort to date, CAPTRUST’s 2022 Endowment & Foundation Survey expands on techniques pioneered in previous years’ edition,” said James Stenstrom, director of CAPTRUST, in the letter from the editor. “We have worked to identify not just what nonprofits are doing, but why. By understanding peer thought processes, organizations can use the collective wisdom of the sector to inform their own decision-making.”  

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