Feb 14 (Reuters) - A federal judge in Texas on Friday

upheld a rule adopted during Democratic former President Joe

Biden's tenure that allows socially conscious investing by

employee retirement plans, saying it remains valid even after a

U.S. Supreme Court ruling that curbed agencies' regulatory

power.

U.S. District Judge Matthew Kacsmaryk in Amarillo, Texas,

rejected arguments by 26 Republican-led states, oil drilling

company Liberty Energy and an oil and gas trade group

that the rule was inconsistent with federal law.

The rule was adopted by the U.S. Department of Labor in

2022 and allows 401(k) and other plans to consider

environmental, social, and corporate governance (ESG) factors as

a "tiebreaker" between two or more financially equal investment

options.

It replaced a 2020 rule adopted during Republican President

Donald Trump's first term in office that barred plans from

considering any non-financial factors. Trump's new

administration is expected to revisit the rule.

Kacsmaryk was appointed by Trump in his first term.

The states argued that the 2022 rule violated the Employee

Retirement Income Security Act of 1974, or ERISA, which requires

retirement plan administrators to act solely in the interest of

participants in the plan.

The Republican-led states said it did so by allowing such

plans to consider non-financial factors. They said the rule if

allowed to stand would jeopardize millions of Americans'

retirement savings.

Kacsmaryk had already rejected those arguments in September

2023.

But a federal appeals court in July directed him to

reconsider his decision after the 6-3 conservative majority U.S.

Supreme Court in June scrapped a 40-year-old legal doctrine

known as "Chevron ( CVX ) deference" that had required courts to defer

to agencies' interpretations of ambiguous laws they administer.

The Supreme Court said instead of deferring to agencies'

interpretations of ambiguous statutes, courts "must exercise

their independent judgment in deciding whether an agency has

acted within its statutory authority."

Kacsmaryk in Friday's decision concluded that "the rule is

not contrary to ERISA under a post-Chevron ( CVX ) analysis," saying

arguments to the contrary embodied "wooden textualism that

courts should endeavor to avoid."

Representatives for the Republican-led states and the Labor

Department did not respond to a request for comment.