In Washington, D.C., and around the world
Biden SEC’s ESG rules remain mostly unfinished
Gary Gensler announced his plans for rules related to ESG investing when he became chairman of the Securities and Exchange Commission (SEC) under Biden almost four years ago. With less than five months left in Biden’s presidency, major parts of the plan—including the corporate emission and climate reporting rules—remain unfinished or stuck in the courts:
The Democrat arrived at the Securities and Exchange Commission in 2021, after George Floyd’s murder in 2020 and President Joe Biden’s election that year fueled interest in environmental, social and governance investing. Gensler wanted public companies to report details about their climate change risks, workforce management and board members’ diversity. He also sought new rules to fight greenwashing and other misleading ESG claims by investment funds.
Almost four years later, most of those major ESG regulations are unfinished, and they’ll likely remain so in the less than five months Gensler may have left as chair. A conservative-led backlash against ESG and federal agency authority has fueled challenges in and out of court to corporate greenhouse gas emissions reporting rules and other SEC actions, helping blunt the commission’s power.
The climate rules—Gensler’s marquee ESG initiative—were watered down following intense industry pushback, then paused altogether after business groups, Republican attorneys general and others sued.
Australia passes emission reporting law
The Australian House of Representatives passed a bill September 9 that will require mandatory climate emissions reporting starting January 2025. The Senate passed the bill last month, so it will become law after it receives royal assent from the governor-general:
Australia’s House of Representatives voted today to pass the Treasury Laws Amendment bill, including new introduce mandatory climate-related reporting requirements for large and medium sized companies, including disclosures on climate-related risks and opportunities, and on greenhouse gas emissions across the value chain, starting as soon as 2025 for the largest companies. …
The new climate disclosure legislation was introduced in January 2024 by Australian Treasurer Jim Chalmers, creating climate-related reporting requirements broadly in line with the recently-released standards by the IFRS Foundation’s International Sustainability Standards Board (ISSB). The Australian Accounting Standards Board (AASB) is currently in the process of developing the internationally-aligned climate disclosure standards for Australian companies, which are expected to be issued shortly, and the Australian Auditing and Assurance Board (AUASB) is developing assurance standards for climate disclosures in late 2024.
Initial reporting requirements will begin in January 2025, pushed back slightly from the initial draft legislation’s proposed July 2024 start date. Reporting requirements will apply to all public companies and large proprietary companies required to provide audited annual financial reports to the Australian Securities and Investments Commission (ASIC) that meet specific size thresholds, starting with companies with over 500 employees, revenues over $500 million or assets over $1 billion, as well as asset owners with more than $5 billion in assets. For medium sized companies (250+ employees, $200 million+ revenue, $500 million assets), reporting requirements will begin in July 2026, and smaller companies (100+ employees, $50 million+ revenue, $25 million+ assets) will begin one year later.
Corporations argue against EU regulations
Some European corporations are pushing back against investors’ ESG preferences and the European Union’s regulatory approach promoting ESG. French oil company TotalEnergies SE CEO Patrick Pouyanne argues ESG is hurting European global competitiveness:
For TotalEnergies SE Chief Executive Officer Patrick Pouyanne, the difference in the performance of his company’s stock and that of Exxon Mobil Corp., the largest US producer of oil and gas, is in no small part explained by an acronym: ESG.
Exxon’s aggressive oil and gas strategy has been rewarded by investors, with its shares more than doubling in the past three years. For Europe’s second-biggest oil company, in contrast, pressure on the region’s asset managers to invest using environmental, social and governance standards has capped gains and prompted Pouyanne to flirt with the idea of listing shares in the US.
The French oil giant isn’t alone in pointing to the skewing effect of ESG regulations that critics say have put European businesses at a competitive and valuation disadvantage to their US peers, with potentially long-lasting effects for the bloc’s economy. Companies from Mercedes-Benz Group AG to Unilever Plc are pushing back. The European Round Table for Industry, whose members have combined annual sales of €2 trillion ($2.2 trillion), says overly stringent regulations are “accelerating loss of competitiveness” and warn that members’ prospects “are better outside Europe.”
Stephen Soukup—an ESG critic and author of The Dictatorship of Woke Capital—made a similar argument last year, saying EU regulations would give American companies a competitive advantage:
It is important to remember here that as American asset managers are retreating from ESG, European asset managers are not. They are, in fact, moving in the other direction. Likewise, as the Biden Administration’s “whole of government” approach to climate, sustainability, and Net Zero is hampered by divided government, constitutional restraints, and pending litigation, the European Union’s much more aggressive approach to these matters is not. The EU is, indeed, moving more slowly today than it was last summer, but it is still scooting down the road to economic oblivion at comparatively breakneck speed.
In practice, what this means is that ESG could place American companies at a competitive ADVANTAGE, relative to their European and even many Asian counterparts. Simply by being empowered to ditch ESG and to let go of the unnecessary, costly, and time-consuming step of ESG-related engagement and compliance, American companies could thrive comparatively. In a world of uncertainty and presumably, tighter money for a longer time, this could be of enormous significance.
In the states
Republican treasurers push back against world’s largest proxy advisor
Fifteen Republican state treasurers sent a letter to Institutional Shareholder Services (ISS)—the world’s largest proxy advisory service—on September 5, arguing the company’s proxy recommendations were biased, citing a report by Consumers Research. According to the Washinton Examiner:
The group of 15 state financial officers is targeting the benchmark policy of Institutional Shareholder Services, a massive proxy advisory firm that gives shareholders recommendations on how to vote on corporate issues. The Republican officers argued in a letter sent Thursday that ISS’s basic benchmark policy is skewed and that ISS advised votes for ESG priorities far in excess of the market. …
The treasurers outlined their grievances in the letter, citing a report from the conservative nonprofit group Consumers’ Research, which is known for opposing corporate ESG. The group reviewed 192 climate-related shareholder proposals that ISS’s benchmark policy appeared to recommend voting for. The report found that just 17% of those proposals received majority support, showing that ISS’s benchmark policy was out of step with the market.
The group contends that ISS heavily favors ESG policies even when there is not a demand for them. The treasurers took umbrage to remarks from Lorraine Kelly, ISS’s global head of investments stewardship, who said during a March CNBC appearance that ISS’s benchmark was “pretty centrist.”
On Wall Street and in the private sector
Vanguard supported zero environmental or social shareholder proposals in latest season
Vanguard—the second-largest asset manager in the world—announced last week that the company voted for zero environmental and social (E&S) proposals in the most recent shareholder season. Two weeks ago, this newsletter mentioned BlackRock also supported fewer E&S proposals. According to the Financial Times:
Vanguard supported none of the 400 environmental or social shareholder proposals that it considered in the 2024 US proxy season, saying they were “overly prescriptive”, unnecessary or did not relate to material financial risks. …
The world’s second-largest money manager is not alone in its dwindling support for environmental and social proposals. BlackRock, the largest at $10.6tn in assets under management, said last week that it had voted in favour of just 4 per cent of such measures worldwide. …
Vanguard’s decision not to back environmental and social proposals has contributed to, and mirrored, a larger fall in support from record levels set in 2021. The median support for environmental and social shareholder proposals at Russell 3000 companies was 21 per cent and 18 per cent, respectively, this year, according to data from ISS-Corporate.