The White House announced on April 10 that the President had signed an Executive Order on “Promoting Energy Infrastructure and Economic Growth.” Section 5 of the Executive Order imposes two requirements on the Department of Labor (DOL), each of which must be completed within 6 months:
- “[C]omplete a review of available data filed with the Department of Labor by retirement plans subject to the Employee Retirement Income Security Act of 1974 (ERISA) in order to identify whether there are discernible trends with respect to such plans’ investments in the energy sector,” and “provide an update to the Assistant to the President for Economic Policy on any discernable trends in energy investments by such plans;” and,
- “complete a review of existing Department of Labor guidance on the fiduciary responsibilities for proxy voting to determine whether any such guidance should be rescinded, replaced, or modified to ensure consistency with current law and policies that promote long-term growth and maximize return on ERISA plan assets.”
Less than one year ago, the DOL released Field Assistance Bulletin 2018-1, in which the DOL clarified its views on how shareholder engagement could be conducted in a manner consistent with ERISA’s fiduciary duties. Proxy voting and other forms of engagement are fiduciary functions under ERISA. The application of ERISA’s fiduciary duties in this context is ultimately a function of materiality and cost, each positively related to the other, so that as the perceived materiality of an issue on investment performance that is the subject of engagement increases, a fiduciary has more rope to incur costs on its meetings with the board, etc. The converse is also true. A possible result of a narrower interpretation by the DOL and/or the courts of what (ESG) risks are material to a company’s performance: less engagement on those risks broadly. A more probable result, however, is that fiduciaries already evaluating ESG risks will continue parsing whatever ad hoc disclosures are volunteered by the companies, and may point to statements made by prominent individuals and institutions on the materiality of these risks.