President Donald Trump took an important step toward reversing the politicization of our financial system this month when he signed an executive order preventing federal regulators and banks from using reputational risk to justify ideological debanking. Next up should be a return to the traditional fiduciary duty designed to prevent that same ideological overreach.
As a state treasurer, I care deeply about the retirement security of Americans. I sometimes think about people like Bryan, a pilot who’s counting on his 401(k) after decades of service. Wall Street’s biggest asset managers have been using Bryan’s savings—and the investments of millions of hard-working Americans—to push political agendas at the expense of retirement security.
Some of those same asset managers now are trying to walk it back. They’ve retreated from their overt promotion of the term “environmental, social, and governance,” adjusted proxy voting practices, and even exited global net-zero alliances that pressure companies to divert capital from critical industries, including energy, agriculture, and mining.
While those steps are welcome, they haven’t addressed the root problem: the subtle but significant stretching of fiduciary standards themselves. Fiduciary duty, the legal and ethical requirement to act in the sole financial interest of shareholders, based on the best available information today, has long been the bedrock of trust in our capital markets. But it’s almost imperceptibly expanding to justify political activism.
The corruption starts with a sleight of hand around the phrase “long-term.” Fiduciaries have long managed risk by building portfolios of many different asset classes that ideally aren’t well correlated with each other and are predicted to perform well in various scenarios. Fiduciaries, as long-term investors, stick to the asset allocation designed to help them reach their goals over many years, market cycles, and uncertain futures.
In recent years, however, investors have hidden behind the phrase “long-term” for goals not aligned with shareholder value. It’s become a convenient justification for pursuing predetermined political outcomes under the guise of prudent investing.
Climate catastrophe, for example, is treated as an impending certainty, rather than one risk among many. Asset managers use this framing to justify immediate interventions, such as forcing companies to cut emissions or exit certain industries. This isn’t risk management. It’s ideological engineering presented as fiduciary care.
The danger is magnified by how this ideology is imposed: through passive investments. Asset managers have exploited their control over trillions of dollars in passive assets to pressure companies into adopting political goals through proxy voting and corporate engagement. These low-cost funds, intended to passively track the market and widely used by millions of Americans, are utilized as levers to reshape corporate behavior, often without the end investor’s input or awareness.
For example, an asset manager might use the influence of Bryan’s passive investments to pressure a major food and beverage company to mandate “regenerative” farming practices such as crop covering, citing, as a long-term investor, the need to address climate risk. The company may agree to take such action, not because it’s in the financial interest of shareholders, but because a shareholder resolution on this issue may otherwise receive majority support from the company’s investors. Meanwhile, Bryan likely has no idea his retirement savings are being used to push an ideological agenda divorced from shareholder value.
The recent federal court ruling in Spence v. American Airlines underscores the importance of restoring fiduciary duty. The court found that American Airlines breached its duty of loyalty under the Employee Retirement Income Security Act by allowing a large asset manager to advance ESG goals, including through its investments and proxy voting activity. The ruling reaffirmed a core principle: Fiduciaries must prioritize financial outcomes, not ideological goals dressed up as long-term risk mitigation.
Markets allocate assets most efficiently and generate the most wealth and national prosperity when fiduciary duty, as it has long been defined by our courts, is upheld. Asset managers, as fiduciary agents for the beneficiaries of 401(k) and other retirement plans, must make decisions that are in the best financial interest of those they represent.
Still, even as some firms retreat from ESG branding, the underlying structure remains intact. Falling back on a narrative embracing the “long-term,” many asset managers have hidden but haven’t abandoned political ideology in their investment activities, treated speculative climate models as certainty, and wielded passive fund influence to drive companies’ behavior.
But fiduciaries aren’t tasked with redesigning the future. Their job is to make decisions based on actual analysis of available information, recognizing that the future is uncertain and unknowable. If we continue to allow fiduciary duty to appease political ambition, we don’t just change the rules, we have a new game. The cost falls on Americans, like Bryan, who entrusted their savings to a system they believed was working in their best interest.
It’s not enough for institutions to distance themselves from ESG. They must actively restore the principles that have long anchored fiduciary responsibility: loyalty, objectivity, and a singular focus on financial outcomes. That’s not just good policy; it’s essential to preserving our free market economy, restoring trust in our capital markets, and safeguarding the hard-earned savings of all Americans.
This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law, Bloomberg Tax, and Bloomberg Government, or its owners.
Author Information
Marlo Oaks is the 26th state treasurer of Utah and currently serves as chairman of the State Financial Officers Foundation.
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