President Trump’s Executive Order yesterday on energy infrastructure and economic growth contained an unexpected Section 5 entitled “Environment, Social and Governance Issues; Proxy Firms and Financing Energy Projects Through the United States Capital Markets.”  While the section does not directly address environmental, social and governance (ESG) disclosure, it restates the definition of materiality from the U.S. Supreme Court case, TSC Industries, Inc. v. Northway, Inc., and reiterates a company’s fiduciary duties to its shareholders to strive to maximize shareholder return, consistent with the long-term growth of the company.  This order comes on the heels of last week’s U.S. Senate Committee on Banking, Housing, and Urban Affairs hearing on ESG Principles in Investing and the Role of Asset Managers, Proxy Advisors and Other Intermediaries, as well as ongoing activity at the U.S. Securities and Exchange Commission level, with certain institutional investors agitating for additional ESG disclosure requirements.

The Executive Order directs the Secretary of Labor to review available data filed with the Department of Labor (DOL) by ERISA subject retirement plans to identify whether there are “discernable trends with respect to such plans’ investment in the energy sector” and report to the Assistant to the President for Economic Policy on its findings.  The Executive Order further directs the Secretary of Labor to review existing DOL guidance on the fiduciary responsibilities for proxy voting to determine whether any such guidance should be rescinded, replaced or modified to ensure consistency with current law and policies that promote long-term growth and maximize return on ERISA plan assets.  The Executive Order does not describe for what purpose the data would be used, but one obvious use could be to enforce the DOL’s guidance of April 2018 on ESG plans which generally states that plan fiduciaries cannot focus on ESG factors solely to benefit the greater societal good.  We discussed the April 2018 DOL guidance in our previous blog post available here.