Deregulation is a significant theme within the new presidential administration, and we saw a historic announcement of potential regulatory rollbacks in March. In this letter, I want to share how we are thinking about an expected wave of deregulation from an engagement and investment perspective. Although specific details about new policies are still emerging, the overall direction is clear. We are closely monitoring these developments to understand their potential impact on the companies in our portfolios.
Taking a step back, government regulations aim to strike a balance between allowing free markets to be a “free for all” and protecting the broader interests of society. These protections include the stability of our financial system, from individuals’ financial interests through the stock market to the standards set for companies for their operations and financial reports and the funds we oversee. Many regulations are typically established following catastrophic events such as the Global Financial Crisis, serving as crucial safeguards against irresponsible corporate behavior that can have tragic consequences on consumers, workers and communities. As they aim to strike a balance, regulations may need to be adjusted from time to time to avoid being overly burdensome in any particular direction.
It’s still too early to tell which regulations will be relaxed, removed or kept intact, and many of the proposed rollbacks are likely to face challenges in the courts. Still, we are considering the potential effects of deregulation because dramatically shifting the regulatory landscape presents a complex mix of potentially significant outcomes that must be carefully weighed.
The most effective regulations can level the playing field among competitors, increase transparency and disincentivize a race-to-the-bottom mentality that places profit growth over all other considerations. Overly stringent regulations can discourage innovation and competition; alleviating unnecessary regulatory burdens can, in certain instances, foster efficiency and innovation. Fewer or weaker regulations may also offer benefits to some companies, such as lower compliance costs, faster permitting processes and potentially improved operating margins.
In contrast, the rapid removal of established guardrails designed to protect environmental and social well-being could also lead to significant short-, medium- and long-term risks. Some companies may adopt a “sugar rush” mentality that prioritizes short-term gains, leading to consequences for workplace safety, environmental protections and data governance. Focusing too much on short-term results can create vulnerabilities, including increased exposure to future litigation, damage to corporate reputation and trust among stakeholders and susceptibility to regulatory “whiplash” if rules are later reinstated or more rigorously enforced.
Working closely with Parnassus sector analysts, our Sustainability and Stewardship team is evaluating regulatory rollbacks, implications for publicly listed companies and their investors and possible sector- and company-specific outcomes. These include:
• Energy: Streamlined permitting, access to federal lands and increases in production and exports may reduce costs and increase margins, but could have negative impacts on affordability, nearby communities and local air quality. These, in turn, could increase legal liabilities related to harm from wastewater discharge or methane leaks.
• Industrials: Companies involved in manufacturing or waste management may face fewer regulations on safety and environmental practices. This may increase potential exposure to product liability claims, future cleanup costs and worker and community accidents.
• Materials: Relaxed rules on mining, plastics and chemicals could present short-term cost savings, but can increase the risk of future product safety and public health litigation, environmental remediation expenses and stranded assets.
• Autos and Transportation: Changes to vehicle-emission and fuel-efficiency standards will require careful monitoring for impacts on global competitiveness, standards misalignment and longer-term environmental performance.
• Consumer Discretionary: Companies with large workforces could see reduced labor and workplace safety compliance costs, but this could also increase the risk of workplace accidents and labor disputes. Reduced consumer protections may make selling products easier in the near- term, but lead to long-term legal and reputation risks.
• Financials: Less stringent disclosure requirements and oversight of financial institutions could reduce compliance burdens but result in poor risk management, systemic climate-risk exposure, stranded assets and reputational damage related to consumer protections. Deregulation in this sector has often preceded periods of instability.
• Healthcare: Deregulation could bring cost savings for providers, although uncertainty remains around the coverage by the Affordable Care Act. There could also be long-term negative consequences for healthcare companies and patients regarding affordability, regulatory fragmentation, state and federal spending, research investment and oversight and transparency of drug pricing.
• Technology: Rescinding AI safety guidelines could leave this sector operating with fewer guardrails. While this may allow for faster development and deployment of new models, it could also give companies an incentive to move fast and break things, whether that involves the use of copyrighted data, inaccuracy and bias in AI models, privacy violations and even physical safety issues. Significant risks also remain from anti-trust and privacy regulations, both in the U.S. and abroad.
A key part of our investment process to select high-quality companies is evaluating their sustainable business practices. Companies can embrace regulatory changes while maintaining their commitment to sustainability and long-term value creation. Forward-thinking businesses understand that responsible practices extend beyond minimum compliance requirements, offering potential strategic advantages. By focusing on operational excellence rather than merely avoiding penalties, these companies can build resilience and mitigate potential risks. We look for companies that view sustainable practices not as regulatory burdens but as the pursuit of high standards in workplace quality, environmental stewardship, product responsibility and ethical governance. Companies with high standards increase their potential to create enduring value regardless of the regulatory environment.
We are still in the early days of understanding the full implications of this wave of deregulation. We will continue to assess the landscape, looking for both potential risks and opportunities, and will have conversations with companies as needed to ensure that they are navigating these changes in a way that supports long-term resilience and value creation.
Q1 in review–stewardship in focus
During the first quarter of 2025, our Sustainability and Stewardship team advanced its impact engagements across key themes, including climate change, chemical safety and responsible AI. We continued to pursue productive, research-driven dialogue with portfolio companies, reinforcing our commitment to long-term value creation and sustainable business practices. In doing so, we adapted to the evolving policy landscape and absorbed early signals of potential shifts — particularly relevant for our climate and chemical safety work. Our efforts were grounded in a belief that persistent, well-informed engagement can lead to meaningful business outcomes, even in a changing market environment. Below are a few highlights from these workstreams.
Climate Change: To enhance the resilience of our strategies and strengthen portfolio companies, Parnassus continues to advance our climate action plan, including our goal of net-zero emissions across all fund assets by 2050. This quarter, we asked all companies in our equity portfolios to assess and disclose climate risks in material areas, set science-based emissions targets if missing and implement transition plans. We also submitted a public comment letter supporting California’s Climate Disclosure Laws, which are especially important given the SEC’s shift away from climate priorities.
Chemical Safety: We continued our impact engagements focused on chemical safety and published Chemical Risks in Consumer Products: What You Need to Know, a piece highlighting the importance of chemical safety to health and business resilience. This followed our previous piece, Investing in Clean Water — Detecting and Removing PFAS. We also expressed Parnassus’s public support for the EPA’s Safer Choice Program on chemical safety, which faces an uncertain outlook under the new administration.
Responsible AI: Recently, Intuit published a set of Responsible AI Principles in direct response to our engagement on AI governance and risk management — a meaningful step forward. These principles address issues relevant to Intuit’s products and services and align with the company’s broader mission to empower financial prosperity. As part of our ongoing AI engagement workstream, we will follow up to understand how these principles are being implemented in practice. We also collaborated with like-minded investors to produce a set of recommendations for companies to reference when implementing an effective rights-based approach to AI.
Additionally, we advanced our Sustainable Workplaceefforts through a crossover engagement focused on the use of AI in human-resources-management tools. For example, we are currently engaging an enterprise software company that is conducting a third-party audit against the National Institutes of Standards and Technology (NIST) Risk Management Framework to assess how ethical considerations are incorporated into the design, development and use of its AI products and services.
Our stewardship work is focusing mainly on proxy season and continued work on our thematic impact engagements. In addition, we will be closely monitoring corporate retrenchments from sustainability priorities that may affect our view of the company’s ability to deliver enduring value to its shareholders.
Thank you for your trust and investment as we at Parnassus continue to pursue Principles and Performance.
Article by Marian Macindoe, who is a managing director, responsible for oversight of the firm’s sustainable investment approach, corporate engagement efforts and proxy voting at Parnassus Investments. She is chair of the firm’s Proxy Voting Committee. Prior to joining Parnassus Investments in 2022, Marian was head of ESG strategy and engagement at Uber Technologies. She functioned as the director of investment stewardship at Charles Schwab and before that as an analyst and advisor for Chevron on ESG concerns. Marian was also the first director of ESG research at Glass, Lewis & Company. Marian received her bachelor’s degree in international and comparative policy studies (economics) from Reed College and her master’s degree in regional and urban planning from the London School of Economics. Marian serves on the board of First Place for Youth, a nonprofit that supports youth transitioning out of foster care in Oakland, California. Marian is also a member of the Corporate Governance Advisory Council for the Council of Institutional Investors (CII) and an advisory board member to the ESG and Law Institute.
ENVIRONMENTAL, SOCIAL AND GOVERNANCE (ESG) GUIDELINES: The Fund evaluates ESG factors as part of the investment decision-making process, considering a range of impacts they may have on future revenues, expenses, assets, liabilities and overall risk. The Fund also utilizes active ownership to encourage more sustainable business policies and practices and greater ESG transparency. Active ownership strategies include proxy voting, dialogue with company management and sponsorship of shareholder resolutions, and public policy advocacy. There is no guarantee that the ESG strategy will be successful. There are no assurances the Funds will meet their investment objectives and or that their ESG strategies will be successful.
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