Treasurer’s worries about DEI and ESG focus

Louisiana State Treasurer John Fleming, M.D., along with 21 state financial officers, penned a letter to the Chairman of the U.S. Securities and Exchange Commission (SEC) and the Acting Secretary of the U.S. Department of Labor (DOL) expressing deep concerns about fiduciary breaches by activist investment managers and plan administrators.

Their primary focus was on the improper use of American retirement plan assets to push forward Environmental, Social, and Governance (“ESG”) and Diversity, Equity, and Inclusion (“DEI”) goals, which they believe goes against ERISA and securities laws by prioritizing political agendas over financial interests.

Dr. Fleming emphasized the immediate need for the SEC and DOL to step in and safeguard the retirement plans of millions of Americans as such actions are detrimental to the financial well-being of families across the nation.

A significant court case in January 10, 2025, brought these concerns to light even further. Judge Reed O’Connor of the U.S. District Court for the Northern District of Texas ruled against American Airlines, stating that they failed in their fiduciary duty by continuing to invest their 401(k) plan assets with BlackRock, knowing that BlackRock placed ESG goals above the beneficiaries’ best interests.

It was also revealed that ESG investments often perform significantly lower than traditional investments, sometimes up to 10%. Dr. Fleming emphasized that the prevalence of ESG activism in investment decisions can have a detrimental impact on families’ financial security.

In response to these issues, Dr. Fleming and the SFOF members put forth a series of recommendations to the SEC and DOL:

– Issue Comprehensive Guidance: Investment decisions and proxy voting should not be influenced by ESG or DEI objectives within a portfolio.
– Initiate Rulemaking: Establish formal rules to fortify fiduciary obligations and ensure that retirement funds prioritize the financial security of beneficiaries.
– Increase Oversight and Enforcement: Implement stronger monitoring mechanisms to oversee fiduciaries and asset managers’ ESG and DEI activities, with particular attention to proxy voting actions.

The main goal of these recommendations is to ensure that fiduciaries remain focused solely on the financial interests of beneficiaries and shield retirement funds from the negative consequences of ESG and DEI-influenced investment choices.

In conclusion, Dr. Fleming and the SFOF members are pushing for regulatory actions to hold accountable those who are responsible for managing retirement plan assets and ensure that these crucial funds are safeguarded against the risks associated with prioritizing non-financial interests over the well-being of beneficiaries.