US Executive Order Targets Proxy Advisors and ESG-Related Voting Practices

On December 11, US President Trump issued an executive order, Protecting American Investors from Foreign-Owned and Politically-Motivated Proxy Advisors (the EO). An accompanying fact sheet was also provided.

The EO takes the position that certain large proxy advisory firms wield too much influence (including with respect to corporate governance, shareholder proposals, board composition, executive compensation, capital markets, and retirement investing) and are using that influence “to advance and prioritize radical politically-motivated agendas” related to diversity, equity, and inclusion (DEI) and environmental, social, and governance (ESG). The EO aims to increase federal oversight over the proxy advisor industry.

The EO sits alongside ongoing congressional inquiries into proxy voting, the FTC’s previously initiated proxy-advisor investigation, and various state-level measures—most notably Texas’s proxy voting statute (SB 2337) and the related litigation—seeking to limit or scrutinize the use of non-pecuniary factors in proxy voting and engagement.

We’ve covered these state measures extensively this year in our October 16, August 5, and July 17 LawFlashes. The EO amplifies the risk of this scrutiny as it underscores prior enforcement actions and regulatory positions that have been taken by the Trump administration, Congress, and a number of states. It prescribes clear oversight directives aimed at the entire proxy advisor industry as well as other actors like institutional investors (such as for retirement plans regulated by the Employee Retirement Income Security Act of 1974, as amended).

THE EXECUTIVE ORDER

The EO directs three federal agencies to take three immediate steps.

1. SEC to Review Regulatory Framework and Practices of Proxy Advisors

The EO directs the US Securities and Exchange Commission (the SEC) directly and/or through the SEC Chairman to take such actions as:

• Undertaking a comprehensive review of the existing regulatory framework governing proxy advisors. This includes revising or rescinding rules and regulations relating to proxy advisors and/or shareholder proposals that are inconsistent with the purpose of the order, especially where those rules implicate DEI and ESG policies.
• Assessing whether certain proxy advisors should be required to register as investment advisers (RIAs).
• Considering requiring proxy advisors to provide more transparency regarding conflicts of interest, among other things.
• Examining whether RIAs violate their fiduciary duties by engaging proxy advisors to advise on non-pecuniary factors like DEI and ESG.
• “[E]nforce[ing] the Federal securities laws’ anti-fraud provisions with respect to material misstatements or omissions contained in proxy advisors’ proxy voting recommendations.”
• Considering the impact of proxy advisors on coordination vis-a-vis group rules under Sections 13(d)(3) and 13(g)(3) of the Securities Exchange Act of 1934.

Key Takeaway

The EO aligns with the current SEC administration’s recent actions regarding ESG, including, among other things, backing away from proposed rulemaking that would have required companies, advisers, and funds to provide greater disclosure around ESG strategies and practices, and updating its guidance on the circumstances under which investors engaging with issuers on ESG and other matters can file a short-form Schedule 13G as a passive or institutional investor rather than a long-form Schedule 13D. Here, the EO directs the SEC to focus its efforts on protecting investors from what it deems “politicized advice,” implicating rulemaking, and directing SEC staff to assess RIAs’ use of proxy advisors and conduct enforcement investigations through what could be considered an “anti-ESG” lens.

2. FTC to Examine Ongoing State Antitrust Investigations

The EO directs the Federal Trade Commission (the FTC) to examine, in consultation with the US Attorney General, ongoing state antitrust investigations involving proxy advisors and “determine if there is a probable link between conduct underlying those investigations and violations of Federal antitrust law” and whether they “engage in unfair methods of competition.”

Key Takeaway

The EO follows ongoing scrutiny of proxy-advisory firms, large asset managers, and corporate collaborations on climate and ESG raising potential antitrust violations. Congressional committees have held hearings and issued letter requests and subpoenas alleging market power and political bias; in November 2025, the FTC announced the launch of investigations aimed at specific proxy advisers for potential antitrust violations, including “unfair methods of competition” (public reports identify that the investigations are focusing on Section 5 of FTC Act); and multiple state AGs opened consumer-protection probes.

These activities have also followed private litigation raising similar claims. Congress, federal agencies, and some state attorneys general have all emphasized that collaboration on sustainability can create antitrust risk if it amounts to agreements that restrict output, fix prices, or otherwise harm competition. The EO amplifies the risk of scrutiny as it underscores prior enforcement actions taken against specific proxy advisors and prescribes clear oversight directives aimed at the entire proxy advisor industry.

3. DOL to Revise Guidance Regarding Fiduciary Status of Proxy Advisors

The EO instructs the US Department of Labor (the DOL) to “revise all regulations and guidance regarding the fiduciary status of individuals who manage, or, like proxy advisors, advise those who manage, the rights appurtenant to shares held by Employee Retirement Income Security Act of 1974 (ERISA).”

The DOL is specifically tasked with assessing whether “proxy advisors act solely in the financial interests of plan participants” and whether any of their practices diminish the pecuniary value of plan assets. The DOL is also asked to increase transparency around the use of proxy advisors by ERISA fiduciaries, with particular attention to DEI- and ESG-related voting and engagement practices.

Key Takeaway

The EO follows and reinforces the DOL’s recent scrutiny of ESG considerations in the retirement plan context. Over the past year, the DOL has signaled a shift away from the Biden-era approach to ESG investing, including its decision not to defend the current ESG rule in pending litigation and its announcement of an intent to replace that rule.

Consistent with those actions, the DOL has already placed ESG-related fiduciary guidance on its regulatory agenda, reflecting a broader reassessment of how non-pecuniary factors should be evaluated under ERISA’s fiduciary standards. Against that backdrop, the EO’s directive that the DOL revisit the fiduciary status and practices of proxy advisors—particularly with respect to DEI- and ESG-related voting and engagement—appears to be part of a coordinated federal effort to narrow the circumstances under which ESG considerations may be taken into account by ERISA fiduciaries and those who advise them.

IMPLICATIONS

The new directives signal that federal oversight of both proxy advisors and the institutional investors who rely on them will intensify, with a likely shift toward higher transparency expectations, potential enforcement activity, and closer review of voting rationales involving anything other than strictly financial considerations.

NEXT STEPS

At this stage, the EO does not impose new immediate compliance obligations. However, many of the EO’s directives align with actions that regulators have already taken and/or reflect regulatory developments that have been reported to already be underway. The EO amplifies the likelihood of continued regulatory scrutiny on these issues and prescribes clear oversight directives for their implementation.

In light of this expected scrutiny, firms that provide proxy advisor services should continue to evaluate their practices, particularly around the role of DEI and ESG, in anticipation of further scrutiny. While the EO targeted the two largest firms by market share, scrutiny may not be limited to those firms. It is notable that, for example, SB 2337 used a potentially expansive definition of proxy advisor services that could capture a wide range of firms.

Institutional investors and others that either vote proxies or use proxy advisory firms should anticipate further upheaval as the regulatory and investigator scrutiny continues. This could be an appropriate time to evaluate proxy voting policies, related governance frameworks, and documentation practices, with particular attention to how proxy advisor recommendations and/or advice is utilized, particularly with respect to ESG- and DEI-related votes.

All impacted parties may also wish to reassess disclosures and other public statements related to consideration of DEI or ESG factors.

HOW WE CAN HELP

We are closely monitoring implementation of this EO and related responses from the SEC, DOL, FTC, and state enforcement officials, including any proposed rulemaking, enforcement activity, or guidance affecting proxy advisors, investment advisers, and institutional investors (including ERISA fiduciaries). Our team regularly advises these entities on the subjects of the EO, including proxy voting governance, fiduciary compliance, and ESG-related regulatory developments, and we are well positioned to help clients assess potential implications for their existing policies and practices. Please contact the authors or your regular Morgan Lewis contacts with any questions or to discuss how these changes may affect your organization.

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