ESG developments this week
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.
In Washington, D.C, and around the world
SEC pauses implementation of climate disclosure rules
The Securities and Exchange Commission (SEC) last week chose to pause its newly released climate data reporting rules, delaying enforcement until pending court cases are heard and decided:
The Securities and Exchange Commission’s decision to pause the March 6 regulations on its own came after business interests and right-leaning challengers asked the US Court of Appeals for the Eighth Circuit to freeze the rules as their litigation there continues. The SEC’s latest move was another early victory for climate disclosure regulation opponents, which have said the agency exceeded its authority with requirements for companies to report their greenhouse gas emissions and disclose climate-related risks to their business.
The US Court of Appeals for the Fifth Circuit previously paused the rules from March 15 to 22, over opposition from the SEC. The litigation then moved to the Eighth Circuit, which was randomly selected in a lottery to hear lawsuits over the regulations. The SEC initially fought against a pause in the Eighth Circuit, as well.
The SEC “will continue vigorously defending” the rules despite issuing the hold, formally called a stay, the agency said in a three-page order. The pause will remain in place as the Eighth Circuit reviews the challenges, avoiding “potential regulatory uncertainty,” the SEC said. The hold also will help the Eighth Circuit focus its review on the merits of the challenges, according to the agency.
European banks argue ESG regulations could make them less competitive with U.S. firms
The European Banking Federation is arguing that E.U. climate regulations could make it hard to compete with U.S. banks, according to Bloomberg. The pushback comes as the U.S. has slowed its regulatory activity while E.U. regulators like the European Central Bank have promoted ESG considerations in the financial sector:
The European Banking Federation says lenders in the region won’t be able to compete with their US rivals if regulators continue to pile on ESG rules that Wall Street remains free to ignore.
The warning from the bloc’s main bank lobby comes as the European Central Bank puts pressure on lenders to capture environmental, social and governance risks, including in loan-loss provisions, marking a new frontier in ESG reporting standards. …
It’s the latest sign that regulators in Europe are moving along a different trajectory than their counterparts in the US. In the EU, banks now face ESG-adjusted capital requirements, more disclosure rules and the possibility of an explicit climate buffer, all of which regulators say will ultimately equip the sector to deal with the risks ahead. In the US, meanwhile, planned rules and guidelines are being walked back against a backdrop of Republican-led opposition to all things ESG.
Federal Reserve officials push back against global climate banking regulations
The Federal Reserve pushed back on April 3 against supporters of global climate banking regulations in a recent meeting of the Basel Committee on Banking Supervision—a group of officials from central banking systems around the world. According to Bloomberg:
European central bankers have been advocating for the Basel Committee on Banking Supervision to agree on requiring lenders to disclose their strategies for meeting green commitments. In closed-door meetings, US officials have cited their narrow mandate and concerns that the Basel Committee was overstepping its purpose, some of the people said.
The rift at the committee, which brings together representatives from regulators and central banks around the world to coordinate rules and oversight of lenders, has been particularly pronounced between some officials at the Fed and the European Central Bank, which has been an avid supporter of more stringent climate requirements, the people said.
Spokespeople for the Fed, the Basel Committee and the ECB declined to comment. The details of the private deliberations by the committee are based on conversations with about a half dozen senior officials, who asked not to be identified because the conversations are confidential, and documents obtained by Bloomberg News.
European insurers phase out oil and gas projects
The Zurich Insurance Group announced April 8 that it will “no longer underwrite new oil and gas projects and is cracking down on clients planning to expand in metallurgical coal mining” in an effort to meet its net zero carbon emission goals:
The restrictions also entail asking the highest-emitting corporate customers to reduce their carbon footprints, the company told Bloomberg. Further details of the policy will be included in the insurer’s climate-transition plan, which will be announced later this year.
Sierra Signorelli, chief executive of commercial insurance at Zurich, said the decision reflects the disconnect between such activities and the insurer’s overall goal of achieving net zero emissions by 2050. …
The move represents a meaningful policy shift for a company that currently insures fossil-fuel infrastructure spanning North Sea drilling to US natural gas terminals. Exposure to such clients generated about $2.1 billion in premiums for Zurich last year, including its alternative energy business. That’s equivalent to 7% of the insurer’s total commercial premiums.
In the states
West Virginia adds four banks to restricted institution list over ESG policies
West Virginia Treasurer Riley Moore (R) announced April 8 that four large banks and financial services firms—Citigroup, TD Bank, HSBC, and The Northern Trust Company—were ineligible to do business with the state under a 2022 state law prohibiting contracts with businesses that boycott fossil fuel companies:
“We are absolutely going to stand by our industries here in fossil fuels,” Moore told FOX Business. “Last year, the world burned more coal than any time in human history. The consumption of coal is not going down. That is a myth that is proliferated by the climate-activist left. So, why would we put ourselves in a position to not be part of that?”
Overall, the Investment and Banking Services Division of the West Virginia State Treasurer’s Office managed $22 billion in banking transactions last year. The four institutions Moore listed on Monday, in addition to the existing banks listed, will be barred from the opportunity to bid on those transactions in the future.
According to Moore’s office, the banks were added to the Restricted Financial Institution List following an extensive review of their environmental, social and governance (ESG) policies. The ESG movement, which has picked up steam in recent years, broadly calls for investments to be pulled from traditional energy industries and diverted to green energy industries in the fight against global warming.
On Wall Street and in the private sector
EY launches sustainable finance hub
EY (formerly Ernst & Young), one of the Big 4 consulting firms, launched a new sustainable finance hub on April 5 providing information on global reporting and regulatory requirements:
Professional services firm EY announced today the launch of a new Sustainable Finance Innovation Hub, aimed at supporting financial institutions globally in meeting their ESG regulatory and reporting requirements.
Based in Dublin, the new hub will add 40 specialists over the next few months, spanning the environmental, social and governance pillars of ESG, more than tripling the size of EY Ireland’s existing financial services sustainable finance team. The hub will also be augmented by professionals with sustainability expertise across Europe, Asia-Pacific and the US.
According to EY Ireland Financial Services Country Lead Colin Ryan, the launch of the new hub comes as the financial services sector is faced with a growing set of regulatory requirements, including disclosure deadlines as soon as this year, adding that the hub “will support firms to more effectively report on their activity and will help clients ensure that they remain compliant with the evolving regulatory environment.”