ESG and proxy voting developments

The Trump Administration has given strong signals that it will give guidance/regulation with respect to corporate and retirement plan environmental, social, and governance (ESG) policy and (especially) proxy voting policy a higher priority than, e.g., revising the fiduciary advice rule. In this article, we briefly discuss DOL’s statement in a federal court filing that it intends to (once again) revise its ESG rule. In addition, and perhaps more importantly, we discuss House hearings on proxy advisory firms and index fund manager antitrust litigation – actions targeting ESG-related proxy voting rather than direct investment in ESG funds.

DOL intends to revise ESG regulation

In September 2023, the United States District Court for the Northern District of Texas, in Utah v. Walsh, upheld DOL’s 2022 amendment of its 2020 ESG investing and proxy voting rules, rejecting claims by 26 states and other interested parties that the rule violated ERISA and the Administrative Procedure Act (APA), finding that “[t]he 2022 Rule changes little in substance from the 2020 Rule and other rulemakings” and that the process by which DOL (in 2022) amended the 2020 Rule adequately addressed issues raised by plaintiffs and was therefore not “arbitrary and capricious.”

The plaintiffs in that case subsequently appealed this case to the Fifth Circuit.

On May 28, 2025, the Fifth Circuit filed a “status update” with respect to that appeal, stating that:

The Department [of Labor] has determined that it will engage in a new rulemaking on the subject of the challenged rule. This rulemaking will appear on the Department’s Spring Regulatory Agenda, and the Department intends to move through the rulemaking process as expeditiously as possible.

It seems that despite DOL efforts to stabilize guidance on this issue via a formal regulation, DOL policy will continue to zig and zag depending on which party holds the White House.

House hearings on proxy voting

As we have discussed in the past, we believe that in the end, the issue of ESG-related proxy voting will be a more significant issue than ESG investments. (In that regard, note that in ESG litigation in Spence v. American Airlines plaintiff-participants “pivoted” from a lawsuit targeting plan fund menu “direct” ESG investments to targeting index fund investments (primarily managed by BlackRock) where the fund manager (allegedly) maintained an aggressive ESG proxy voting policy.)

In this regard, on April 29, 2025, the House Financial Services Subcommittee on Capital Markets held a hearing on "Exposing the Proxy Advisory Cartel: How ISS & Glass Lewis Influence Markets."

In an opening statement, Chairman of the (full) Financial Services Committee French Hill (R-AR), stated:

Today, ISS and Glass Lewis shape the outcomes of shareholder votes across the market, especially as large index funds often vote in lockstep with their recommendations. In my view, that's not just advice. It's intimidating, de facto control. Even more troubling, companies are frequently reporting factual errors in proxy reports and are rarely given a chance to correct them before votes are cast. We need greater transparency, due process, and oversight to ensure that proxy voting remains accountable to the shareholders, not outsourced to this largely unregulated duopoly.

ERISA fiduciary obligations with respect to the retention, use, and monitoring of proxy voting firms were highlighted in Trump 2020 proxy guidance. The Biden 2022 revision deleted some of this language, e.g., a statement (in the Trump 2020 rule) that:

Where the authority to vote proxies or exercise shareholder rights has been delegated to an investment manager … or a proxy voting firm or other person who performs advisory services as to the voting of proxies, a responsible plan fiduciary shall prudently monitor the proxy voting activities of such investment manager or proxy advisory firm and determine whether such activities are consistent with [the Trump general fiduciary rules with respect to proxy voting].

While many would view this duty to monitor as part of the fiduciary’s general duty of prudence, some would view the deletion of this language as, in effect, downplaying the extent to which a plan fiduciary must concern itself with proxy voting decisions by an investment manager or advisory firm. (And, at the risk of repetition, we note that that issue is at the heart of the Spence v. American Airlines litigation.)

For more background on this issue, see our article Criticism of current proxy voting policy – the Republican House Financial Services Committee Working Group, outlining the view of House Financial Services Committee Republicans of the proxy voting issue.

Antitrust lawsuit against large index fund managers

The focus, coming primarily (if not exclusively) from Republicans, on the proxy voting policies (particularly) of index fund managers cuts across several legal areas – ERSIA (as noted above in the Trump DOL’s 2020 proxy voting rule), in financial services regulation (e.g., in the hearing recently held by the House Financial Services Committee), and in antitrust.

With regard to the latter, on May 22, 2025, the Department of Justice and the Federal Trade Commission filed a “Statement of Interest” in the lawsuit by 11 “Red States” against BlackRock, State Street, and Vanguard (alleged to be, via index funds they manage, “the three largest shareholders of America’s publicly-held coal companies”).

The DOJ/FTC Statement of Interest is generally in favor of the States’ antitrust action proceeding. Quoting:

Investor behavior motivated solely by the desire to improve an investment’s value through competition on the merits does not implicate the Clayton Act. … But that is not what Plaintiffs allege here. Plaintiffs allege that Defendants agreed to use their combined shares in competing coal companies to reduce production of coal in the United States, thereby driving down output and driving up prices. … Plaintiffs further allege that Defendants in fact used their stakes in the competing companies to coerce [via the exercise of proxy and other shareholder rights] the management of those companies to reduce production, purportedly in service of an “ESG agenda.” … This horizontal conduct allegedly drove up prices for consumers and businesses. That is precisely the sort of anticompetitive behavior the antitrust laws are designed to prevent.

In explaining their interest in this litigation, DOJ and FTC cited President Trump’s Executive Order No. 14,156, declaring “a national energy emergency” and Executive Order No. 14,261, arguing that “[c]oal is vital to America’s energy security and provides a reliable, cost-effective source of energy to support growing electrical demand for artificial intelligence and a resurgence in domestic manufacturing.”

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It’s unclear where all of this activity will land – critically whether there will be legislation addressing these issues, agency action (e.g., via a revision of DOL’s ESG regulation), more litigation, or some combination of these.

We will continue to follow this issue.