ERISA Overhaul: House Committee Approves Bill Prohibiting ESG Factors

July 4, 2025

By Jack Grogan-Fenn

The House Committee on Education and Workforce has voted through a bill which will restrict retirement fund managers’ ability to consider ESG factors in investment decisions.

The Protecting Prudent Investment of Retirement Savings Act passed the committee in a 21-to-15 vote, with all Republican committee members voting in favour of the bill and all Democrat members voting against.

The bill seeks to amend the 1974 Employee Retirement Income Security Act (ERISA) to specify requirements regarding the consideration of pecuniary and non-pecuniary factors.

These alterations comprise four areas: the limitation on consideration of non-pecuniary factors by fiduciaries, service provider selection, the exercise of shareholder rights and brokerage window disclosures.

The bill now needs to be rubber stamped by the full House of Representatives in the coming months. The House currently comprises 220 Republicans and 212 Democrats, meaning that the bill would be narrowly approved if Representatives vote along party lines.

If the bill becomes law, the limitations and documentation requirements for using non-pecuniary factors such as ESG would go into effect 12 months after its enactment, while the section on the exercise of shareholder rights would go into effect on January 1, 2026.

“Advancing a radical political agenda at the expense of retirement savers is wrong,” the Committee on Education and Workforce stated in a press release. “Republicans are committed to protecting the retirement savings of workers, retirees, and their families. [The] bill seeks to ensure financial institutions are focused on maximizing returns in retirement plans rather than on woke ESG factors.”

The act was introduced in April by Representative Rick Allen. In a statement issued when the bill was launched, Allen argued that it would “codify that retirement plan sponsors must make investment decisions solely based on financial returns—ensuring Americans' hard-earned savings are invested sensibly”.

The bill proposed adding limitations on consideration of non-pecuniary factors by fiduciaries, including ESG factors. It demands that fiduciaries “act solely in the interest” of pension plan participants and beneficiaries and only undertake investment actions based on pecuniary factors.

The bill would not entirely exclude the ability of fiduciaries to consider non-pecuniary factors. It would only allow non-pecuniary factors to be considered if a fiduciary is “unable to distinguish between or among investment alternatives or investment courses of action on the basis of pecuniary factors alone.”  This would mean that ESG factors could only be incorporated in a tiebreaker scenario if the fiduciary explains why they were unable to decide between two investments solely based on pecuniary factors.

The bill would define pecuniary factors in ERISA as “a factor that a fiduciary prudently determines is expected to have a material effect on the risk or return of an investment based on appropriate investment horizons consistent with the plan’s investment objectives and the funding policy established”.

The requirements on the exercise of shareholder rights changes also encompass investment managers and proxy advisors. The act states that responsible plan fiduciaries must “prudently monitor” the proxy voting activities of investment managers and proxy advisors to determine whether such activities comply with the bill’s paragraphs on the authority to exercise shareholder rights and requirements for exercise of shareholder rights.

Under the second Presidency of Trump, Republican politicians and lawmakers have increasingly targeted ESG on several fronts.

If the Protecting Prudent Investment of Retirement Savings Act is passed into law, it would further unwind a US Department of Labor (DOL) rule from Joe Biden’s time as President which permitted fiduciaries to use ESG factors in a tiebreaker scenario between two investments.

Last month, Minerva Analytics reported that the US DOL was working to scrap the Prudence and Loyalty in Selecting Plan Investments and Exercising Shareholder Rights rule. This rule enabled retirement fund managers to take ESG factors into account in the case of a tiebreaker between two financially equal investment options.

The rule had been challenged in the US 5th Circuit Court of Appeals in court by 26 attorneys-general of Republican-led states, who claimed that it violated the ERISA and undermined key protections for the retirement savings of over 150 million employees.

The creation of the new rule is expected to be fast tracked by the DOL, with further details anticipated in the Trump administration’s spring regulatory programme.

Proxy advisors are also facing mounting regulatory pressure. Last week, Republican Congressman Scott Fitzgerald introduced a bill which seeks to “prohibit certain acts by proxy advisory firms”.

Fitzgerald accused proxy advisory firms as having had an “outsized influence over corporate governance” while “operat[ing] in the shadows”. He also claimed that the bill will “rein in these unaccountable firms and restore fairness and transparency for American investors”.

The stated objective of the bill is to make it “unlawful for a proxy advisory firm to provide proxy voting advice if the proxy advisory firm possesses a conflict of interest, direct or indirect”.

Minerva’s blog focuses on the latest developments in ESG investing and stewardship. Minerva is a global provider of sustainable stewardship solutions with over 25 years of expertise. Minerva empowers investors by providing essential tools, including ESG research and data, enabling them to navigate the intricate landscape of stewardship and proxy voting, whilst ensuring their decisions are well-informed and aligned with sustainable principles.

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