Tax

The Trump administration’s vision of exploitation of natural resources as a significant driver of economic growth was reinforced on April 10 with its issuance of an Executive Order on “Promoting Energy Infrastructure and Economic Growth,” which focuses on promotion of the crude oil and natural gas industries in the United States.  Although energy infrastructure and the federal Employee Retirement Income Security Act (ERISA) seem unlikely bedfellows, Section 5 of the executive order, acknowledging the impact of retirement plan investment trends, directs the Department of Labor (DOL) to review retirement plan energy investment trends and current agency guidance on economic, social and governance (ESG) investment considerations.  The executive order further directs the Secretary of Labor to further “determine whether any [current] guidance should be rescinded, replaced or modified to ensure consistency with current law and policies that promote long-term growth and maximize return on ERISA plan assets.” 

Although difficult to predict, the impact of the executive order and DOL review appears unlikely to cause a significant shift in DOL guidance.

Private defined benefit pension plans hold approximately $3 trillion in assets, the investment of which is subject to strict fiduciary standards, requiring those who manage such assets to act “solely in the interests of plan participants and beneficiaries.”  Over the years, the DOL has issued guidance considering whether the ESG impact of an investment may be taken in to account by plan fiduciaries consistent with these standards.  In Interpretive Bulletin 2016-1, issued under the Obama administration, the DOL asserted that proxy voting and shareholder engagement on ESG issues can be consistent with an ERISA investment manager’s fiduciary duties. The DOL under the Trump administration issued a new spin on this guidance in Field Assistance Bulletin 2018-1, which qualifies prior guidance by characterizing ESG considerations as consistent with ERISA fiduciary duties because they do generally not involve significant expenditure of expenses — emphasizing economics as a driving factor.

While the executive order clearly demonstrates the Trump administration’s intent on limiting the impact of institutional investors’ focus on ESG with respect to the fossil fuel industry, it is unlikely that current DOL guidance will be significantly modified or rescinded to so limit ERISA fiduciaries. In prior guidance in 2016 and 2018, the DOL took pains to emphasize that fiduciary consideration of ESG factors was consistent with ERISA and promotion of long-term growth and return on ERISA plan assets.  Although the latter guidance was more cautionary than the former, and emphasized that expenditures in connection with ESG considerations must be reasonable, it did not back away from the position that ERISA fiduciaries may consider ESG factors. Given that the administration is the same as in 2018, and that there have been no related changes to ERISA, a fundamental shift in DOL position as a result of this executive order is unlikely.