Investors urge DoL to pull ESG proposals

Wisconsin Democrat wants to put investors back in charge

US Senator Tammy Baldwin has proposed new legislation that would reverse a final rule from the Department of Labor (DOL) to limit retirement plans from voting on corporate proxies.

On 11 December, the DOL finalised a rule requiring pension funds to vote on shareholder proposals only when they are “solely” in the financial best interest of the retiree.

Senator Baldwin said: “With this action, the message from President Trump and Secretary Scalia is clear: big corporations and investment funds want workers to hand over their hard-earned savings and then stay quiet.”

Baldwin, who has represented Wisconsin in the senate since 2013, said the DOL’s rule would “allow special interests and big corporations, who already have too much power in Washington, to continue to put short-term profits and their own pay-checks ahead of workers and their retirement savings”.

Legislation proposed by the senator would reverse this rule and make it easier for pension scheme members to control how shares held for retirement are voted.

The Encouraging More Proxy voting by Organized Workers, Employees, and Retirement Savers (EMPOWERS) Act would allow workers to elect representative trustees, who would manage their plan jointly with the employer’s trustees. They would also set voting guidelines that investment managers would be required to follow.

“We must take action to give workers and retirees a seat at the table and their rightful voice in board rooms across America, and that’s what my legislation will do,” she concluded.

In August, the DOL originally proposed that fiduciaries only participate in proxy votes that have an economic impact on the plan’s investment performance.

After it received more than 300 written comments during the open comment period, as well as more than 6,700 form letters from stakeholders, the proposed regulation was watered down.

However, the finalised legislation retains the rule that fiduciaries should not sacrifice investment return or take on additional investment risk to promote non-pecuniary benefits or any other non-pecuniary goals.

The new rules will make it more difficult for pension fund managers to include socially responsible funds in portfolios at a time when there is growing shareholder pressure on companies to act on climate change.

During Donald Trump’s presidency, officials introduced a raft of rules targeting shareholder voting and pension fund allocations. The Securities and Exchange Commission introduced new restrictions on proxy advisory firms that recommend how investors should vote in corporate elections in July.

It also announced new rules in September restricting shareholders’ access to corporate proxy voting by limiting the filing of resolutions.

However, the anti-climate change agenda pursued by the Trump administration looks set to reverse following the election of President Biden, who has proposed an ambitious environmental protection programme, as well as promising to take the US back into the Paris Agreement.

Last Updated: 17 December 2020
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