BATON ROUGE – Louisiana State Treasurer John Fleming, M.D., along with 21 other state financial officers, has raised concerns over Environmental, Social, and Governance (ESG) and Diversity, Equity, and Inclusion (DEI) investment strategies affecting retirement funds. In a letter addressed to the Chairman of the U.S. Securities and Exchange Commission (SEC) and the Acting Secretary of the U.S. Department of Labor (DOL), the group argues that activist investment managers and plan administrators are failing in their fiduciary duties by prioritizing political and social agendas over financial returns.
Concerns Over Fiduciary Violations
Dr. Fleming and his colleagues, members of the State Financial Officers Foundation (SFOF), argue that ESG and DEI-focused investments are being pursued at the expense of financial performance. They contend that such investment strategies violate the Employee Retirement Income Security Act (ERISA) and securities laws, which require fiduciaries to act in the best financial interests of retirement plan beneficiaries.
“It is essential for the Securities and Exchange Commission and the Department of Labor to take immediate action to protect the retirement plans for millions of Americans,” said Dr. Fleming.
Legal Ruling Highlights the Issue
The concerns raised by the financial officers are underscored by a recent court ruling. On January 10, 2025, Judge Reed O’Connor of the U.S. District Court for the Northern District of Texas ruled that American Airlines violated its fiduciary duty by continuing to invest its 401(k) plan assets with BlackRock, despite knowing the firm prioritized ESG goals over financial returns.
The court found that ESG investments typically underperform traditional investments by approximately 10%, further fueling criticism that such strategies harm retirement security.
Recommended Actions for SEC and DOL
Dr. Fleming and his fellow state financial officers are calling on the SEC and DOL to implement policies ensuring fiduciary responsibility remains focused on financial returns rather than political activism. Their recommendations include:
- Issuing Comprehensive Guidance – Clarifying that investment decisions and proxy voting cannot be motivated by ESG or DEI objectives over financial interests.
- Initiating Rulemaking – Strengthening fiduciary obligations to protect retirement savings from ideological influence.
- Increasing Oversight and Enforcement – Implementing mechanisms to monitor asset managers’ ESG and DEI activities, with stricter scrutiny on proxy voting.
Call for Action
With billions of dollars in retirement assets at stake, the state financial officers are urging federal regulators to ensure fiduciaries act solely in the financial interests of beneficiaries. They argue that ESG and DEI-driven investment decisions could have long-term negative consequences for American retirees and working families.
As debates over fiduciary responsibility and investment strategy continue, the pressure mounts on federal agencies to take a firm stance against the perceived financial risks of ESG and DEI influence.