What Now? Investors’ Role in Fighting Financial Deregulation
By Meron Lemmi
This presidential administration is poised to roll back financial regulations that protect long-term, diversified investors. Both public and private markets face a wave of deregulatory efforts that would weaken investor protections and undermine corporate accountability.
To lay the groundwork to robustly defend investor protections, Americans for Financial Reform Education Fund (AFREF), the Interfaith Center on Corporate Responsibility (ICCR), the AFL-CIO, the Center for Labor and a Just Economy, SOC Investment Group, and attorney Beth Young hosted a webinar giving an overview of the upcoming threats, how investors can push back, and the proactive actions they can take to promote oversight of the financial system and corporate accountability.
The Urgency of Investor Action
Josh Zinner, CEO of ICCR, kicked off the discussion by highlighting mounting attacks on responsible investing. These include state-level restrictions on the consideration of environmental, social, and governance (ESG) factors in investment decisions, legal challenges to the Securities and Exchange Commission (SEC) oversight, and Supreme Court rulings limiting federal regulatory authority that all pose risks to investors’ ability to manage systemic financial risks.
“The SEC and Congress are becoming increasingly hostile to shareholder engagement, ESG investing, and even climate science itself,” Zinner warned. “We anticipate rulemakings that will erode the tools investors rely on to manage risks, alongside legal challenges to shareholder rights.”
Despite these threats, Zinner stressed that responsible investors must mobilize to defend corporate accountability tools and maintain a strong voice in policy debates.
Retirement Security and Threats from Deregulation of Private Markets
Brandon Rees, Deputy Director of Corporations and Capital Markets at the AFL-CIO, focused on the impact of deregulation on retirement security. He pointed to the likely repeal of the Biden administration’s fiduciary rule, which currently protects workers’ 401(k) plans from conflicts of interest and misleading financial advice.
“The first Trump administration provides a clear roadmap for what to expect — and unfortunately, it’s not good,” Rees stated.
Rees highlighted efforts to open 401(k) plans to private equity investments, which are less liquid, less transparent, more risky, and often come with higher fees. The Biden-era SEC rules to curb abuses and improve transparency in the private equity industry were struck down by the courts. Without these protections, Rees warned, workers’ retirement savings would be increasingly vulnerable.
Rees also cautioned that the SEC could allow private equity and private credit funds to expand into retail markets, exposing everyday investors to riskier, less-regulated products. The SEC recently considered a private credit exchange-traded fund backed by Apollo and State Street — an example of how the private markets are being positioned as a mainstream investment option.
Additionally, a Republican-controlled Department of Labor could reinstate restrictions on ESG investing, limiting fiduciaries’ ability to consider important risks, like climate change, in pension fund investment decisions.
Deregulation of Public Markets
Beth Young warned that a Republican-led SEC would likely roll back shareholder rights. She pointed to the SEC’s recent decision allowing companies to exclude lobbying disclosure shareholder proposals on “micromanagement” grounds, and predicted the formalization of an approach by the SEC Division of Corporate Finance that would make it “easier for companies to exclude shareholder proposals and harder for investors to bring critical issues — like climate and governance — to the table.” Unfortunately, her prediction became reality.
The SEC may also impose additional barriers that would make it harder for investors to engage with companies. For example, the percentage of company stock a shareholder must own to submit a proposal could be raised again, making it more difficult for smaller investors to participate. Proxy vote resubmission thresholds, which determine the level of support a proposal must receive to be refiled in future years, could also be increased, limiting investors’ ability to build momentum over time. In the most extreme scenario, the SEC could strip the right of investors to bring proposals before company management altogether.
Young cautioned that “Commissioner Uyeda has even suggested companies amend their bylaws to eliminate shareholders’ state law right to submit proposals.”
Young stressed that investors must prepare to litigate, push back on rule changes, and demonstrate the financial benefits of preserving shareholder engagement.
Additionally, financial transparency is under threat. Tejal Patel, Executive Director at SOC Investment Group, warned that the SEC could limit investor access to critical financial information.
“New rules could allow issuers to decide what’s ‘material’ — severely restricting disclosure requirements,” Patel explained.
Proxy advisory firms, which provide independent voting recommendations to investors, could also face renewed restrictions. Previous Trump-era rules required firms to register with the SEC, allowed companies to challenge voting recommendations, and allowed companies to sue them over for their voting guidance, which significantly increases the cost of proxy voting advice and chills investor engagement.
On asset managers, Patel predicted increased scrutiny over ESG voting. Large institutional investors may have to file detailed reports explaining their shareholder votes and justify decisions that oppose management. Additionally, the SEC could prohibit tools that make proxy voting easier.
Patel concluded that the changes would “gum up the system, making proxy voting more complex and resource-intensive” and would lead to a decline in support for ESG proposals.
Pushing back in rulemakings and the courts
Renee Jones, Boston College Law School professor and former Director of the SEC’s Division of Corporation Finance, highlighted the critical role of comment letters in shaping financial regulations. Under the Administrative Procedure Act (APA), the SEC must review and respond to substantive comments before finalizing rules, making well-crafted letters a key tool in regulatory advocacy. Comment letters can shape internal debates, result in the adoption of proposed changes, and lay the groundwork for legal challenges. Jones advised investors to focus on concrete legal or data-driven arguments that highlight specific impacts of the proposed rule rather than relying on broad generalities.
Con Hitchcock, Principal at Hitchcock Law Firm, explained how investors can challenge harmful deregulatory rules under the Administrative Procedures Act, which requires federal agencies to follow specific procedures when promulgating rules. If they don’t, courts can step in and overturn regulations.
Courts can strike down rules or send them back for revision. Since lawsuits can take years, investors should seek preliminary injunctions to block rules before they take effect. Hitchcock noted that legal challenges don’t always require costly lawyers. Investors can work with nonprofit legal groups, public interest law firms, or state attorneys general. If successful, courts may even require the government to cover legal fees. “Litigation is a powerful tool. Winning a case sets a precedent and strengthens future challenges,” Hitchcock concluded.
Alphonso David, President and CEO of the Global Black Economic Forum and Senior Legal Advisor to the Freedom Economy, urged investors to take proactive legal action, including against state laws and policies that restrict ESG investing. These laws not only limit investment decision-making but also conflict with fiduciary duty. “Because ESG investing can provide superior risk-adjusted returns, these types of investments are actually required by a fiduciary duty of prudence,” David explained.
David warned that attacks on ESG have escalated and urged investors to file preemptive legal challenges before these restrictions become entrenched. “We need to stop playing defense and start pushing back,” David emphasized. “If we don’t challenge these laws now, they will dictate investment decisions for years to come.”
Investors Must Fight Back
Renaye Manley, Finance & Pension Funds Fellow at the Center for Labor and a Just Economy, closed the webinar with a powerful reminder: “Everybody can’t do everything — but everyone can do something. When we look back in five years, what will we say we did? The first step is taking action now.”