A group of 22 Republican state financial officials are calling on the Securities and Exchange Commission and Department of Labor to issue new guidance and rules to restrict environmental, social and governance investing options for asset managers and retirement plans.
The state officials, which include treasurers, auditors and a comptroller, sent a letter Jan. 28 to Vince Micone, acting labor secretary, and SEC acting Chair Mark Uyeda asserting that action is needed to protect retirement savings for millions of Americans.
“There is an indisputable trend, among large asset managers, to prioritize political and social agendas over the financial security of hardworking Americans,” the officials wrote. “Retirement security should not be jeopardized in order to facilitate corporate virtue signaling and activist-driven initiatives.”
The letter cites a Jan. 10 federal court decision in which a judge ruled that American Airlines and its retirement plan fiduciaries violated ERISA’s guidelines by putting corporate interests ahead of participants’ interests due to using ESG factors in their investment decision-making. In that case, a former American Airlines pilot sued the company and plan fiduciaries for two 401(k) plans in June 2023 saying the plans’ doing business with certain investment managers — including BlackRock — violated ERISA due to their investments, proxy voting and other actions that included support of ESG principles.
The judge’s decision, which experts describe as a “head-scratcher,” could have broad consequences for defined contribution plan management.
In light of the decision, the Republican state financial officials would like the DOL and SEC to issue new guidance and rules concerning ESG investing.
Their requests include guidance stating that investment decisions or proxy voting cannot be motivated by the goal of achieving within a portfolio ESG or diversity, equity and inclusion objectives, such as reducing greenhouse gas emissions or establishing board quotas.
Further, the officials called for formal rulemaking to “reinforce and codify fiduciary obligations, ensuring that retirement funds serve their intended purpose of maximizing financial security for beneficiaries.”
Rulemaking should address prohibitions on the use of plan assets to advance political or social agendas and enhanced disclosure requirements for asset managers regarding the financial impact and legal liability of ESG and DEI initiatives, the officials said.
The agencies should also establish robust mechanisms to monitor the ESG and DEI activities of fiduciaries and asset managers, including heightened scrutiny of proxy-voting activities, according to the letter.
Representatives from the SEC and DOL did not immediately respond to a request for comment.
The Trump administration is expected to take a harsher stance on ESG investing than the Biden administration.
At the DOL, the Biden administration issued a rule stipulating that retirement plan fiduciaries can consider ESG factors when selecting investments. The rule was needed, Biden-era DOL officials said, because late in the first Trump administration the department issued a rule stating that plan fiduciaries could not invest in "non-pecuniary" vehicles that sacrifice investment returns or take on additional risk, which triggered a “chilling effect” on ESG consideration.
Biden officials said their rule also makes clear that fiduciaries cannot sacrifice returns or take on additional risk, but the Trump rule, and especially the proposal on which it was based, established a viewpoint that ESG consideration was improper.
The Biden-era ESG rule survived a court challenge in 2023, but the Republican attorneys general who challenged the rule filed an appeal on narrower grounds in January 2024 and the case is before the 5th U.S. Circuit Court of Appeals in New Orleans.
The officials who signed the list are:
- Alabama Auditor Andrew Sorrell
- Alaska Commissioner of Revenue Adam Crum
- Arizona Treasurer Kimberly Yee
- Idaho Treasurer Julie Ellsworth
- Indiana Comptroller Elise Nieshalla
- Iowa Treasurer Roby Smith
- Kansas Treasurer Steven Johnson
- Kentucky Auditor Allison Ball
- Kentucky Treasurer Mark Metcalf
- Louisiana Treasurer John Fleming
- Mississippi Treasurer David McRae
- Missouri Auditor Scott Fitzpatrick
- Nebraska Auditor Mike Foley
- Nebraska Treasurer Tom Briese
- North Carolina Treasurer Brad Briner
- Oklahoma Auditor and Inspector Cindy Byrd
- Oklahoma Treasurer Todd Russ
- South Carolina Treasurer Curtis Loftis
- South Dakota Treasurer Josh Haeder
- Utah Treasurer Marlo Oaks
- Wyoming Auditor Kristi Racines
- Wyoming Treasurer Curt Meier
