Trump Signs EO Challenging Proxy Advisors Promoting ESG, DEI Investing
President Donald Trump on Thursday signed an executive order that would halt what he stated is an “outsized influence” of proxy advisors who prioritize social factors in retirement plans over investor returns.
The order directed several federal agencies to review and possibly rescind guidance on diversity, equity, and inclusion (DEI) and environmental, social, and governance (ESG) factors.
Specifically, in the order, Trump directed the chairman of the Securities and Exchange Commission (SEC) to review and, “as appropriate, rescind or revise” regulation related to proxy-advisors that involve DEI and ESG investments, as well as rules “related to shareholder proxy proposals that are inconsistent with the policies in the Order.”
Among other directions from the order include requiring the SEC to enforce anti-fraud provisions in securities laws against proxy advisors’ voting recommendations; consider requiring proxy advisors to register as investment advisors; consider increasing transparency on conflicts of interest; examine whether proxy advisors and investment advisors coordinate their voting decisions; and assess whether investment advisors breach their fiduciary duty by hiring proxy advisors to advise on “non-pecuniary factors” like DEI and ESG.
The executive order also calls on the chairman of the Federal Trade Commission (FTC), along with the Attorney General, to establish whether proxy advisors have engaged in “unfair methods of competition or acts of practices,” and to review ongoing state antitrust investments for those who Trump says may be in violation of Federal antitrust law.
It also directs the Department of Labor (DOL) to apply stricter fiduciary rules under the Employee Retirement Security Act of 1974 (ERISA) and increase fiduciaries’ transparency when working with proxy advisors.
Trump’s executive order accused two proxy advisory firms of “using Americans’ 401(k)s, IRAs, and pensions” to “force leftist policies” on U.S. corporations. He claimed that the proxy firms, Institutional Shareholder Services (ISS) and Glass Lewis, have recommended votes for “racial equity audits, aggressive GHG emission cuts, and other actions” that he asserts, “advance radical politically-motivated agendas like DEI and ESG.”
ISS and Glass Lewis currently control 90% of the proxy advisor market according to the Journal of Financial Economics.
The executive order is the latest in a string of attacks against social investments in retirement plans. Republican lawmakers in November reintroduced a bill that would establish prior regulation on ESG factors under the first Trump administration. It would mandate employers under ERISA to consider only financial factors when choosing retirement plan investments and would amend previous Biden-era regulation that allowed fiduciaries to consider social funds.
Meanwhile, the DOL in October listed plans to replace the fiduciary rule with new regulation by May 2026, with the intent of allowing fiduciaries to “select investments and exercise shareholder rights based only on financial considerations relevant to the risk-adjusted economic value of a particular investment, and not to advance social causes.”
Despite these attacks, a February 2025 report from Cerulli shows that plan participants remain concerned over ESG-related issues, even as more disengage with the investments. The study found that 67% of respondents said they would rather invest in a company that pays their workers a fair or living wage, and 49% of investors and 42% of self-directed investors would rather not invest in companies that make products they consider objectionable.
Amanda Umpierrez is the Managing Editor of 401(k) Specialist magazine. She is a financial services reporter with nearly a decade of experience and a passion for telling stories and reporting news. She is originally from Queens, New York, but now resides in Denver, Colorado.