Tucked into one of the two executive orders affecting the oil and gas industry that were signed by President Donald Trump on April 10 was a passage directing the secretary of labor to evaluate how retirement plans subject to federal oversight invest in the energy sector.

The president barely touched on that aspect during the signing ceremony in Crosby, Texas, near Houston. The thrust of the orders was to speed permitting of infrastructure projects by diminishing the ability of states to slow them down.

“My action today will cut through destructive permitting delays and denials,” he told an appreciative crowd.

But the passage, Section 5, while ostensibly structured to protect investments in the energy sector could carry some long-term risk as well. And its inclusion in the order caught many in the industry off-guard.

“This is a complete surprise to me,” James F. Bowe Jr., a partner in the Washington, D.C., office of King & Spalding, told HartEnergy.com. “I had not heard about this being discussed until it came out in the order.”

The text of Section 5 is straightforward. Within six months, the U.S. Department of Labor will review data of retirement plans subject to the Employment Retirement Income Security Act of 1974 (Erisa) “to identify whether there are discernible trends with respect to such plans’ investments in the energy sector.”

The secretary of labor will then review whether existing guidance on proxy voting should be changed.

“This appears to be suggesting that retirement plans subject to Erisa may be operating in some way—perhaps even suggesting that they are operating in concert—in a way relative to their investments in energy firms and I think, in particular, fossil fuel-focused companies—oil and gas producers, coal producers,” Bowe said.

Perhaps it’s just innocuous, he said, and will just result in a report and tweaks to guidance that won’t mean much. Then again….

“My unvarnished view of this is that this is intended to intimidate plans that are subject to ERISA that have been engaging in aggressive advocacy in the direction of companies that are invested in the fossil fuel field and to suggest that their advocacy is inappropriate under ERISA,” Bowe said.” This, I think, is intended to suggest that to the degree that ERISA-governed plan sponsors are actively challenging fossil fuel companies’ practices, policies, whatever, they ought to stop it.”

To Michael Underhill, chief investment officer of Wisconsin-based Capital Innovations LLC, that is a positive direction for the energy industry.

“It would increase investment in fossil fuels as Trump’s executive order is the latest measure that the Trump administration has taken seemingly against the use of ESG [environmental, social and governance] investments within Erisa plans,” he told HartEnergy.com. “In 2018, the [Labor Department] issued guidance on what sponsors must consider when evaluating ESG investment options that has been viewed as more restrictive than guidance provided during the Obama administration. The Department of Labor retreated in April 2018 from Obama-era guidance on ESG funds and the changes could have a chilling effect on the use of those products yet spur energy investments.”

On April 23, the department issued a bulletin that plan fiduciaries can only consider the environmental, social or governance standards of investments as they relate materially to financial considerations.

“The new bulletin will most likely make plan advisers and sponsors question whether to recommend or include ESG funds on plan menus,” he said.

Neither Bowe nor Underhill believe that retirement plans bound by Erisa will head to court anytime soon to contest the order since it is too early to know what the department will recommend to the White House and how the guidance might be enforced.

There is, however, the risk of a directive by a pro-oil and gas administration backfiring on the industry in terms of fund managers avoiding energy company investments altogether to steer clear of oversight.

“In that sense it would be an unintended consequence of this kind of activity because I wouldn’t have thought that this administration’s goal is to stifle investment in fossil fuel-focused companies,” Bowe said. “But I could imagine that in a close case, a plan manager might say, ‘know what? If we were to become active in this space and were to begin to want to express our views as to policy calls or investment directions of some of these companies, we will have the government considering whether we are committing a thought crime or not.’

“If I were that plan manager,” he said, “I’d think that maybe my money would be better off put elsewhere where we might actually have an opportunity to influence the direction of the companies we invest in without having the government checking us.”