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Alternative Investment

Inflation, war, rising interest rates posed steep challenges for investors in 2022

The sixth top story of 2022 was a series of contentious battles against investment-related regulation. After nearly a year in office, the Biden administration ramped up the aggressiveness with which his agencies made regulatory decisions in line with policy. In March, the SEC unveiled a proposal for a rule that would require public companies to disclose climate-related information, including the oversight and governance of climate-related risks by boards and management, and how any identified climate-related risks have affected or are likely to affect strategy, business model and outlook, among other requirements. The proposal seemed to be another salvo in the escalating war regarding ESG, reaching its peak in December when two House Republicans introduced a bill that would limit the SEC’s ability to establish additional disclosure requirements on public companies.

Another potential blow to the SEC’s authority may be pending as well. In November, the U.S. Supreme Court heard arguments in a case that could allow companies and people facing SEC charges to challenge the agency’s constitutional authority in U.S. District Court before the SEC settles the matter in-house.

While the court has yet to make a decision on the administrative law judge case and the SEC’s rule-making authority, a June 30 Supreme Court decision may also affect the Department of Labor’s own rule-making authority. That decision in favor of West Virginia in the state’s lawsuit against the Environmental Protection Agency regarding that agency’s regulatory authority could affect the DOL, some ERISA attorneys agreed.

The court’s 6-3 ruling appears to limit the EPA’s ability to regulate the emissions of greenhouse gases to individual power plants rather than more ambitious efforts such as cap-and-trade systems, in which carbon emissions are given a price that would motivate them to invest in cleaner technologies.

The lawsuit had challenged the level of the EPA’s authority to regulate carbon emissions from power plants under the Clean Air Act.

One attorney cited the DOL’s issuance earlier this year of Compliance Assistance Release 2022-01, a document for 401(k) plan fiduciaries telling them to “exercise extreme care” before selecting cryptocurrency as an investment option in plan menus.

ForUsAll Inc., a 401(k) plan administrator that offers cryptocurrency to participants through a self-directed brokerage window, filed a lawsuit on June 2 against the DOL seeking to vacate that guidance.

“For example, one argument made in that complaint is that the DOL singled out one asset class for special negative treatment even though the Employee Retirement (Income) Security Act doesn’t give the DOL authority to do that. That argument seems stronger today,” said Carol Buckmann, a partner at law firm Cohen & Buckmann PC, in an email after the EPA ruling was announced.

Other regulatory actions during a busy year included the DOL in November finalizing a rule to explicitly permit retirement plan fiduciaries to consider climate change and other ESG factors when selecting investments and exercising shareholder rights, and also in November proposing a rule to expand its Voluntary Fiduciary Correction Program that allows ERISA-covered plan sponsors to self-correct errors they make after failing to send employee contributions or participant loan repayments to retirement plans in a timely manner. Also, in August, the SEC finalized a rule requiring companies to disclose information reflecting the relationship between executive compensation and financial performance, and in December, approved a host of trading and best execution rules.

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