Economy and Society is Ballotpedia’s weekly review of the developments in corporate activism; corporate political engagement; and the Environmental, Social, and Corporate Governance (ESG) trends and events that characterize the growing intersection between business and politics.
ESG developments this week
In Washington, D.C., and around the world
The EU moves to pass ESG due diligence bill
The European Union is getting closer to passing a bill that will require greater due diligence on the part of most businesses with respect to ESG-related factors. The bill could expose companies to greater liability and penalties for certain ESG violations such as environmental damage caused by a corporation (or damage caused by a company that a corporation does business with). Some European businesses are pushing back against the bill:
“Some of the most powerful lobbyists in Europe’s finance industry are preparing to fight the passage of an ESG bill, after it won early backing from European Union lawmakers.
The Association for Financial Markets in Europe, whose members dominate the region’s debt and equity capital markets, says a planned EU law designed to make it easier to sue companies for ESG violations ignores the unique status of financial firms.
The Corporate Sustainability Due Diligence Directive (CSDDD) moved a step closer to becoming law last week, after the EU Parliament’s legal affairs committee struck a preliminary agreement to cover all sectors, including the finance industry. If passed, the law will force companies to pay a lot more attention to their value chains.
In practice, that means that human rights abuses or environmental damage that occurs in an EU corporation’s value chain may expose that company to civil liability or regulatory penalties.
CSDDD has the potential to be one of the EU’s most far-reaching pieces of environmental, social and governance rulemaking. While ESG regulations passed to date impose disclosure requirements on companies, the due diligence directive would force them to act on the information they’re disclosing. If they don’t, they can be punished by regulators and sued by stakeholders.
Lara Wolters, the EU Parliament member responsible for ushering CSDDD through the chamber, said she’s bracing for a “tough” battle with the finance industry. She also said there’s too much at stake for lawmakers to cave.
The power that banks, asset managers and insurers have “is huge,” Wolters said. So to suggest “that power isn’t going to be used to try to affect any positive change” would be “crazy,” she said.
The next step for CSDDD is a formal vote of the parliament committee, which is due to take place on Tuesday. After that, it goes to the full chamber and then to the European Council.”
Biden executive order incorporates environmental justice into federal agency missions
Last week, President Biden issued an executive order creating a White House Office of Environmental Justice and directing all federal agencies to prioritize what it described as environmental justice in their policymaking whenever and however possible:
“President Biden will sign an executive order Friday in the Rose Garden that will direct every agency of the federal government to incorporate “environmental justice” into its mission, the White House said.
The White House has invited environmental justice leaders, climate advocates and community leaders to join the president at the signing ceremony today. There, Biden will reaffirm his administration’s commitment to fighting climate change and correcting “disproportionate environmental harms,” including those inflicted by a “legacy of racial discrimination including redlining.”
“The executive order will direct agencies to address gaps in science and data to better understand and prevent the cumulative impacts of pollution on people’s health. It will create a new Office of Environmental Justice in the White House to coordinate all environmental justice efforts across the federal government. And it will require agencies to notify nearby communities in the event of a release of toxic substances from a federal facility,” a White House official said….
The new White House Office of Environmental Justice created by Biden’s action will be led by a Federal Chief Environmental Justice Officer, who will be tasked with coordinating “environmental justice” policy across the whole federal government….
The White House contrasted Biden’s planned action with policies favored by House Republicans and Speaker Kevin McCarthy, R-Calif., accusing “extreme MAGA Republicans” of being in the pocket of Big Oil.”
GOP presidential candidate criticizes Biden administration for encouraging ESG
The day after President Biden’s environmental justice announcement, the New York Post published an op-ed by a challenger for the White House, Vivek Ramaswamy. The op-ed – which is an excerpt from Ramaswamy’s new book Capitalist Punishment: How Wall Street is Using Your Money to Create a Country You Didn’t Vote For – criticized the administration for, in Ramaswamy’s view, tilting the scales on ESG and steering public funds to pet projects using the investment strategy. Ramaswamy – an entrepreneur and the founder of the self-described post-ESG asset management firm Strive – announced his bid for the Republican presidential nomination earlier this year:
“It’s no surprise that liberal politicians have been some of environmental, social, and governance (ESG) policies’ strongest proponents.
ESG-friendly politicians often co-opt pension fund money for political ends.
However, that’s not the only power they have.
Elected officials can also wield influence through executive orders, agency directives, and letter writing to pave the way for ESG asset managers to access the back door of corporate America and sometimes even shove those managers through.
That’s exactly what President Biden has done.
The first thing he did when he took office was pick up his executive order pen.
He used it to direct his federal agencies to revisit their rules with an eye toward making them more ESG-friendly.
There was no need for messy bipartisanship, congressional compromises, or involving the legislative branch at all.
Why bother with the tedious, constitutionally approved method of making new laws when there is an army of federal bureaucrats at your disposal?
On day one of his presidency, he lamented “the unbearable human costs of systemic racism” and mandated an “ambitious whole-of-government equity agenda.”…
The same day, he rejoined the Paris Agreement, and simultaneously issued another order directing that all federal agencies “immediately commence work to confront the climate crisis.”…
Within a week, he issued yet another order, promising “bold, progressive action that combines the full capacity of the Federal Government with efforts from every corner of our Nation, every level of government, and every sector of our economy.”
He charged every federal agency with appointing an “Agency Chief Sustainability Officer” and announced that the United States would be “promoting the flow of capital toward climate-aligned investments and away from high-carbon investments.”
By May, his executive orders became even more specific, focusing federal climate efforts on the financial sector in particular.
Through strokes of the executive pen, a Green New Deal that would never be approved by Congress would be pushed on corporate America through Wall Street, guided by the heavy hand of federal agencies at every turn.
Following the orders of the new climate commander-in-chief, the government joined the ESG battle. For the most part, federal agencies were pleased to be conscripted into service.
The Department of Labor was one of the first agencies to respond….
There’s another little-known federal agency that is playing a big role in allowing ESG to go unchecked: the Office of the Comptroller of the Currency (OCC).
The agency is tucked inside the Department of the Treasury and is tasked with regulating US banks.
As ESG proponents know, access to banking services from major financial institutions is a critical part of any business—if a business can’t open a bank account, process credit card payments, or get lines of credit, it can’t exist.
Cutting off banking services is a death blow and one that can be delivered without political or market accountability….
So through the OCC’s somewhat obscure rule-making and guidance-issuing process, the Biden administration has handed ESG activists their sledgehammer back.
Banks, like asset managers, are simply one more tool that politicians can manipulate to further political agendas that Congress would never enact.”
In the states
Florida advances bill opposing ESG
The Florida Senate passed a bill on April 19 that would prohibit the state and local governments from using ESG in debt financing and investing. The bill now goes to Governor Ron DeSantis (R):
“Florida’s Republican-controlled Senate approved on Wednesday a bill that bans state and local governments from using environmental, social, governance criteria when selling debt or investing public money. The legislation, which had already cleared the state’s House of Representatives last month, will now be brought to DeSantis for his signature.
The 44-year-old governor has attacked ESG as part of a larger conservative agenda at the center of his likely 2024 GOP presidential run. DeSantis, like other Republican officials, has criticized Wall Street’s ESG policies as “woke capitalism.” His administration has pulled about $2 billion from BlackRock Inc. and singled out Chief Executive Officer Larry Fink, one of Wall Street’s leading ESG advocates.
The new legislation prohibits Florida municipalities from selling bonds tied to ESG projects, as well as imposing restrictions on seeking ESG ratings. In 2022, Florida issuers sold $13 billion of long-term bonds, making it the fourth-largest issuer in the US, behind California, New York and Texas.
The law also bars Florida’s public money from being deposited in financial institutions that are deemed to pursue “social, political, or ideological interests” in their investment decisions. Florida had almost $37 billion in state deposits, with Wells Fargo & Co. holding the biggest individual amount, $6.5 billion, according to data from Florida’s Bureau of Collateral Management.”
On Wall Street and in the private sector
Some companies are hoping to avoid ESG discussions during annual meeting season
According to Axios, this spring – during the annual general meeting season and the accompanying votes on shareholder proposals – many companies are trying to avoid discussions related to ESG or other perceived controversial matters:
“Companies don’t want to talk about their environmental, social and governance goals anymore, experts in ESG and communications tell Axios….
Promoting ESG policies was once an easy layup to score good press — and theoretically move toward bettering society — but now it’s a way to court controversy, the ire of politicians, and attention from well-funded anti-ESG groups….
Anti-ESG forces are in full swing this proxy season — the time of year when public companies host their annual meetings, and shareholders vote on a slate of investor proposals.
Investors have filed 68 anti-ESG proposals this year to date — compared to 45 in all of 2022, per data from the Sustainable Investments Institute, a nonprofit.
About one-third of the anti-ESG proposals this year are focused on diversity — asking companies, including Apple, JPMorgan, Coca-Cola and McDonald’s, to report on the “risks” that their anti-discrimination or racial justice efforts pose to their business.
Two proposals ask companies to avoid public policy positions unless there’s a business justification. And a handful are asking public companies to report the risks posed by attempting to achieve net zero or decarbonization goals….
“Companies should be prepared to deal with ESG backlash,” the Conference Board warned in its recent proxy season preview.”
Nevertheless:
“Companies are soldiering on with diversity or climate initiatives they think are important — or good for business — but they’re just less willing to talk about it.
Worth noting: The retreat isn’t simply about anti-ESG efforts. Businesses are also more inclined to stay mum as regulators like the SEC start paying more attention to companies’ ESG-related claims.
The bottom line: ESG efforts aren’t going away, but you might see fewer press releases and puff pieces about the issue.”