Top five 2023 stories of the pro-ESG movement

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.

Year in review 2023, part two

Economy & Society last week reviewed the most noteworthy events pushing back against ESG from 2023. 

This week’s edition will wrap up our two-part 2023 retrospective with a look at noteworthy events supporting ESG. 

Top five stories of 2023 in support of ESG

1. Congressional Democrats defended ESG

While congressional Republicans received attention for their efforts to oppose ESG through hearings and legislation, congressional Democrats were involved in defending ESG policies. Economy & Society covered that defense on September 12, citing E&E News from Politico:

When Republicans began trumpeting plans to crack down on green-minded investments following their House takeover, Democrats started preparing a counterattack.

The result was the mobilization of the Sustainable Investment Caucus, conceived of as an educational clearinghouse for members of both parties on environmental, social and governance investing, known as ESG.

“I think we beat the snot out of them, from a political perspective,” said co-chair Rep. Sean Casten (D-Ill.). “We made them answer to the truth.” … Democrats characterized Republican opposition to ESG as anti-capitalist, discouraging market choice and investor freedom by suggesting ESG factors should not be taken into account.

2. California enacted corporate climate disclosure requirements

At the state level, California enacted two bills requiring certain types of corporations to disclose expanded emissions data and anticipated financial risks related to climate change to the state. We reported on the bills September 26, citing JDSupra:

Last week, the California Legislature passed two far-reaching climate disclosure bills – SB 253, the Climate Corporate Data Accountability Act (CCDAA), and SB 261, the Climate-Related Financial Risk Act (CRFRA) – together, the California Climate Accountability Package. The passage of these bills puts California in the position to implement first-of-its-kind mandatory climate disclosure in the US. While these bills are similar to the climate rule proposed by the Securities and Exchange Commission (SEC) in March 2022, the bills reach further on several fronts… Because the bills would apply to both public and private companies over certain revenue thresholds, they are expected to significantly broaden the number of companies required to publish public climate disclosures. Gov. Gavin Newsom has until October 14, 2023, to sign or veto the bills and, if he does neither, they will automatically become law – though he has indicated that he plans to sign both bills.

In summary, SB 253 requires disclosure of and independent third-party assurance on all global greenhouse gas (GHG) emissions – Scopes 1, 2 and 3 – for any entity “doing business in California” with global annual revenues exceeding $1 billion. SB 261 requires disclosure of climate-related financial risks, in accordance with recommendations from the Task Force on Climate-Related Financial Disclosures (TCFD), for entities doing business in California with global annual revenues exceeding $500 million. A discussion of the requirements of each bill, as well as a comparison to other climate disclosure rules, follows below. Although both bills provide broad outlines of climate reporting expectations, the California Air Resources Board will be responsible for developing implementing regulations, which will presumably contain more detailed reporting instructions. …

The California Climate Accountability Package goes further than the SEC proposed climate rule, as it applies to both public and private companies that do business in the state and meet certain annual revenue thresholds. The SEC’s proposed climate rule targets only public companies reporting to the SEC, including US public companies and foreign private issuers. 

3. Europe continued to support ESG 

European investors continued supporting ESG investment funds throughout 2023, despite the ESG negative view of ESG we covered last week in America and Britain. Ballotpedia wrote about Europe’s ESG support in January 2023, citing The Financial Times:

Exchange traded funds aligned with environmental, social and governance outcomes accounted for 65 per cent of all net inflows into European ETFs in 2022, even as ESG strategies underperformed.

The ESG ETFs gathered €51bn over the year out of total flows to European-domiciled ETFs of €78.4bn. The overall totals were down on 2021 when investors poured €160bn into European ETFs, but ESG’s share jumped significantly from the 51 per cent recorded then.

“In principle, this speaks of a long-term structural change,” said Jose Garcia-Zarate, associate director of passive fund research at Morningstar. He noted that 2022 was not a year to be investing in ESG for those purely focused on near-term returns. Instead a more sensible tactical approach might have been to focus on fossil fuel firms or weapons manufacturers. “I guess it tells us that investors are taking the long-term view,” he said.

4. ESG regulations became more uniform

The E.U., the U.K., the U.S., and other governments have different ESG regulatory frameworks, resulting in a lack of global regulatory consistency

ESG supporters in 2023 promoted greater regulatory consistency. Economy & Society covered the effort on August 8, citing Reuters:

The world of global business standards is a deliberate and slow-moving one. That makes the recent release of the first International Sustainability Standards Board (ISSB) standards after just 18 months lightning quick, in relative terms.

The board’s inaugural standards are IFRS S1, which tells companies what information they need to disclose to investors about the sustainability-related risks and opportunities they face over the short, medium and long term; and IFRS S2, which sets out specific climate-related disclosures and is designed to be used with IFRS S1. …

Ilmi Granoff, senior fellow at the Sabin Center for Climate Change Law and Adjunct Research Scholar at Columbia Law School, says: “The ISSB standards are not fundamentally about a world of voluntary disclosure. They are emerging at a time when we are shifting towards regulated reporting regimes, and it is really important to harmonise those, and the language that different regimes are using – that is the key to convergence.”

5. Supporters pushed back against ESG opposition in court

Pensioners sued the states of Kentucky and Oklahoma in 2023, claiming state-level laws opposing ESG caused them financial harm. A U.S. trade group also sued Missouri, alleging the state’s anti-ESG legislation conflicted with U.S. securities laws. According to Reuters

A top U.S. trade group for financial firms filed a lawsuit accusing Missouri of “overstepping its boundaries” after the state passed a rule to curb the impact of environmental, social and governance (ESG) factors in investment decisions.

Under the new rule, broker-dealers in Missouri would be required to obtain consent from customers to purchase or sell an investment product based on social or other non-financial objectives, such as combating climate change.

The Securities Industry and Financial Markets Association (SIFMA), which represents banks, asset managers and broker dealers, said on Thursday the rule was in conflict with federal securities laws, which advocate a uniform regulatory regime across the country.

Next week

Thank you for joining us through our 2023 ESG retrospective! Next week we’ll be diving back into the news of the day as we continue our coverage of the ESG trends in 2024.