In two recently proposed rules, Financial Factors in Selecting Plan Investments and Fiduciary Duties Regarding Proxy Voting and Shareholder Rights, the Department of Labor (DOL) has made clear that under the Employee Retirement Income Security Act of 1974 (“ERISA”), Environmental, Social and Governance (ESG) investing does not have a place in the investment portfolio of an employer-sponsored pension plan and that a plan manager cannot participate in shareholder voting and engagement with portfolio companies unless these activities are expected to enhance the economic value of the plan.

What these two recent rules do not address is how an ERISA plan manager is to deal with the shareholder activism of an investment adviser with a large amount of delegated voting authority. This voting power is a result of both the large movement of assets into the index funds of a relatively small number of investment advisers, such as BlackRock, and the industry practice of mutual funds and electronically traded funds (“ETFs”) delegating voting authority into the hands of their respective advisers. An investment adviser’s shareholder activism is reflected in its rhetoric, disclosing the objectives of its activism, shareholder voting, and engagement with portfolio companies.