In this week’s edition of Economy and Society:
- Senator proposes limits on proxy voting in federal retirement plan
- EU allows ESG labels for weapons makers
- UK to regulate ESG ratings providers
- EU delays and revises deforestation regulation
- PCAF updates reporting framework for financial institutions
In Washington, D.C., and around the world
Senator proposes limits on proxy voting in federal retirement plan
What’s the story?
On Nov. 25, Senator Ted Cruz (R-Texas) proposed legislation affecting the federal Thrift Savings Plan (TSP), the retirement program for civilian federal employees and active-duty service members. The proposal would bar the firms that manage TSP assets—primarily BlackRock and State Street—from casting shareholder votes tied to those holdings.
Cruz said he wants to stop the firms from using TSP shares to support proposals related to environmental, social, and governance (ESG) issues and diversity, equity, and inclusion (DEI) initiatives. The bill states that the restriction covers all proxy voting the asset managers conduct on behalf of the TSP.
Why does it matter?
The Thrift Savings Plan recently passed $1 trillion in assets. For comparison, CalPERS reported $556.2 billion for the same period. This scale gives the TSP substantial influence in corporate elections and shareholder proposals, and restricting proxy voting would change how one of the country’s largest retirement programs is represented in those decisions.
Cruz’s bill adds to ongoing policy questions about how large asset managers should participate in corporate governance when they handle public retirement funds. Shifting proxy authority away from BlackRock and State Street would change how TSP-held shares are voted.
What’s the background?
BlackRock and State Street have been central to several developments this year involving proxy voting and climate-related investment pledges. In early November, State Street withdrew the U.S. arm of its business from the Net Zero Asset Managers initiative, a voluntary coalition in which asset managers pledge to work toward net-zero emissions across their portfolios. Around the same time, BlackRock’s support for ESG proposals fell to less than 2% of the proposals it voted on, marking the fourth straight year of decline.
EU allows ESG labels for weapons makers
What’s the story?
The European Union (EU) approved a change to its sustainability framework that will allow companies involved in producing certain weapons to qualify for ESG investment labels. The European Commission had earlier proposed narrowing the list of weapons manufacturers that EU sustainability benchmarks exclude.
Under the change, companies producing incendiary weapons, depleted-uranium ammunition, and nuclear weapons would no longer be automatically barred from receiving ESG labels. Supporters described the revision as an effort to clarify EU rules, while several political groups in the European Parliament opposed the measure, arguing that it would mislead investors and weaken the meaning of sustainability labels.
Why does it matter?
The update expands the range of companies that may be included in EU-designated ESG products, affecting which defense firms can access investors who rely on EU sustainability labels. It also reflects shifting debates about how defense and security considerations should be treated within ESG criteria, a discussion that has intensified since Russia’s invasion of Ukraine.
The change may influence how asset managers classify funds and how investors interpret the EU’s sustainability designations, given the longstanding association between ESG labels and exclusion of certain weapons producers.
What’s the background?
Debate about whether defense companies should qualify for ESG classifications has intensified since Russia’s invasion of Ukraine, and European funds have already increased their exposure to the sector. In October, reporting showed that ESG funds in Europe were contributing to a rise in investment in defense-related firms. The EU’s new rule continues that shift and clarifies how certain weapons manufacturers will be treated within the bloc’s sustainability framework.
UK to regulate ESG ratings providers
What’s the story?
Britain’s Financial Conduct Authority (FCA) announced plans to bring ESG ratings providers under direct supervision. The agency said the proposal is intended to increase transparency, standardize disclosures, and address concerns about conflicts of interest in the ratings market. The proposal follows legislation introduced in October to establish a framework for regulating ESG ratings providers.
Under the proposal, providers would need to disclose conflicts, identify the factors they assess, describe their methodologies, and explain how they handle complaints. Employees involved in producing ratings would be barred from trading the securities of companies they evaluate. The regime would take effect in June 2028, after an authorizations process beginning in 2027.
Why does it matter?
The FCA’s proposal would introduce formal regulatory requirements for ESG ratings providers, including new expectations for transparency, conflict management, and disclosure. These standards would apply across a market that is widely used in financial decision-making but currently operates without direct supervision.
The plan would also determine which firms may continue providing ESG ratings in the UK, since providers would need FCA authorization to operate under the new system.
What’s the background?
The process began in October, when the government introduced legislation to bring ESG ratings providers under FCA oversight. The proposal outlines how that system would be implemented through 2028. Reuters reports that the EU is also developing its own approach to regulating ESG ratings providers, indicating parallel work in other jurisdictions.
EU delays and revises deforestation regulation
What’s the story?
EU lawmakers reached a provisional agreement to delay and amend the EU Deforestation Regulation (EUDR), a law requiring companies to ensure that products entering or leaving EU markets do not contribute to global deforestation. The regulation had already been postponed once from its original 2024 start date and will now be delayed again to the end of 2026 for large companies, with later dates for smaller operators.
The agreement also includes simplifications to the regulation. Reporting and due diligence requirements would shift primarily to operators that first place covered products on the EU market, while downstream companies would face fewer submissions in the EUDR information system. The changes would also ease obligations for small and micro operators and remove certain printed products from the regulation’s scope.
Why does it matter?
The changes would extend the timeline for companies preparing to comply with one of the EU’s major sustainability regulations and reduce some of the administrative demands associated with tracing products to their origins. Businesses operating in affected commodity and manufacturing sectors would face a revised set of compliance expectations and reporting responsibilities.
Member states and companies raised technical concerns about data-system readiness and administrative capacity, prompting lawmakers to include another review in 2026 that could lead to additional adjustments before the EUDR takes full effect.
What’s the background?
The EUDR was adopted in 2023 to prevent deforestation-linked products from entering EU markets and requires companies to trace relevant goods to the land on which they were produced. The regulation was first scheduled to take effect at the end of 2024, but was postponed to give companies more time to prepare for due diligence and data-submission requirements. Lawmakers have continued refining the policy as implementation challenges have emerged, including concerns about IT-system capacity and compliance burdens across the supply chain.
On Wall Street and in the private sector
PCAF updates reporting framework for financial institutions
What’s the story?
The Partnership for Carbon Accounting Financials (PCAF) released an updated version of its "Global Greenhouse Gas Accounting and Reporting Standard for the Financial Industry." The standard, first published in 2020, and banks, asset managers, insurers, and asset owners use it to measure and report greenhouse gas emissions associated with loans, investments, and other financial activities.
The expansion adds new methods that apply to a broader set of financial instruments, such as loans tied to specific projects, securitized assets, and certain types of public-sector debt. It also introduces new ways to measure insurance-associated emissions and includes guidance for reporting avoided emissions and forward-looking metrics. PCAF said industry working groups contributed to the revisions.
Why does it matter?
The updated standard broadens the tools available for financial institutions seeking to assess emissions across complex portfolios. The new methods for financial and insurance products that were not previously covered allow firms to measure a larger share of their financed and insurance-linked emissions.
The revisions also reflect growing demand for consistent and transparent accounting frameworks as climate-risk reporting requirements evolve globally. Institutions using the standard will be able to provide more complete disclosures tied to their lending, investment, and insurance activities.
What’s the background?
PCAF launched in 2019 to create a common approach for measuring financed emissions. The organization released its first global standard in 2020, and many financial institutions now use it in their reporting. Participation in PCAF continues to grow, and the new update adds methods for additional asset classes and incorporates feedback from industry groups.