In this week’s edition of Economy and Society:
- Trump election may bring new ESG rules
- Republicans pick up one state financial officer position
- Judge rejects request to block California emissions law
- Invesco fined over ESG claims
- Trump anti-ESG policies could affect global competitiveness
In Washington, D.C.
Trump election win may bring new ESG rules
What’s the story?
Changes to federal ESG rules are likely following Donald Trump’s (R) presidential election win. Two regulatory agencies specifically—the Securities and Exchange Commission (SEC) and the Department of Labor (DOL)—have promulgated significant rules favoring ESG under the Biden administration, conflicting in some cases with prior Trump rules.
Why does it matter?
The incoming Trump administration may seek to undo Biden administration ESG regulations, including:
- the DOL rule allowing ESG considerations in investments governed by the Employee Retirement Income Security Act of 1974 (ERISA).
- the SEC rules requiring corporate emissions and climate risk reporting.
What’s the background?
To learn more about rules and regulations related to ESG, click here.
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President-elect Donald Trump will likely move to dismantle ESG-related regulations in the US when he takes office in January.
That would mean blocking Securities and Exchange Commission rules for corporate and fund disclosures, and Labor Department requirements on pension funds, according to Rob Du Boff, a senior analyst at Bloomberg Intelligence. The new administration also is expected to put limits on ESG-related shareholder proposals filed during proxy season, he said. …
The SEC, under Chair Gary Gensler, already was under pressure from Republican politicians and corporate lobbying groups to water down the agency’s rulemaking around environmental, social and governance initiatives.
In the states
Republicans pick up one state financial officer position
What’s the story?
Republicans gained one state financial officer (SFO) position in the Nov. 5 general election, as Dave Boliek (R) defeated incumbent Jessica Holmes (D), and Bob Drach (L) in the race for North Carolina Auditor. Partisan control did not change for the 17 other SFO positions (10 treasurer and seven other auditor offices) up for direct election.
Going into the election, Republicans controlled 12 of the officerships on the ballot, compared to Democrats’ six. With the races decided, Republicans will control 13 to Democrats’ five.
Why does it matter?
SFOs often oversee state investments, such as public pension funds, giving them a key role in deciding if their respective states will incorporate ESG strategies into their portfolios. Some SFOs also have roles in directly implementing and enforcing pro- or anti-ESG laws and regulations and ensuring funds are invested in the best interests of beneficiaries.
What’s the background?
SFOs fall into three groups: treasurers, auditors, and controllers. Of the 106 SFOs in the U.S., 69 are elected, and 37 are appointed. Heading into the Nov. 5 election, there were:
- 40 Democratic SFOs/nonpartisan SFOs appointed by Democratic officials,
- 60 Republican SFOs/nonpartisan SFOs appointed by Republican officials, and
- Six nonpartisan SFOs who were appointed by a combination of Democrats and Republicans, nonpartisan officials, or multi-member boards.
In addition to the 18 seats that were directly elected, nine positions were indirectly affected. For more information about the effects of the election on unelected SFOs, click here.
Judge rejects request to block California emissions law
What’s the story?
U.S. District Judge Otis Wright II denied a request from the U.S. Chamber of Commerce and other business groups to block two California laws requiring corporate climate emissions data disclosures for large companies doing business in the state.
Why does it matter?
If the California laws are upheld in court as constitutional, companies with more than $1 billion in revenues that do business in California will have to report Scope 1 (operations), Scope 2 (purchased energy), and Scope 3 (supply chain) emissions, beginning in 2026. The court’s ruling last week allowed the law to move forward but also left room for further legal challenges.
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Following the approval of the new climate disclosure laws, the U.S. Chamber of Commerce, alongside other business groups, filed a lawsuit against the state, arguing that the new rules would violate the first amendment by compelling businesses to engage in subjective speech, and claiming that supply chain emissions “can be nearly impossible for a company to accurately calculate,” and that they would obligate companies to “subjectively report their worldwide climate-related financial risks and proposed mitigation strategies.” The plaintiffs requested a “summary judgement” to block the law immediately, and prior to providing evidence in the discovery phase.
The judge appeared to criticize the plaintiffs’ choice to present the case as a “facial challenge,” in which such legislation would always be deemed unconstitutional and immediately dismissed, stating that the decision to do so “comes at a cost.” The judge added that without discovery, the court did not have sufficient information to determine “which of the laws’ applications violate the First Amendment,” and to “measure the constitutional against the unconstitutional applications.”
The ruling also noted, however, that it disagreed with the state’s argument that that the new law should not be subject to First Amendment scrutiny, but noted that as it may be classified as a law regulating commercial speech, which could be subject to a lower standard of scrutiny, particularly as the rules were designed to “prevent companies from making potential misleading statements,” and as “many companies advertise their business as ‘green’ or emissions conscious,” and as pursuing net zero goals.
On Wall Street and in the private sector
Invesco fined over ESG claims
What’s the story?
The SEC fined Invesco Advisers $17.5 million over its ESG investment claims. The agency argued Invesco’s claims were unprovable and likely false and misleading to investors.
Why does it matter?
Although the SEC closed its ESG task force several weeks ago, this action against Invesco and similar fines against Wisdom Tree Asset Management show that the agency intends to continue enforcement activity against false or deceptive ESG claims by financial firms.
What’s the background?
See this newsletter’s coverage of the SEC’s action against Wisdom Tree here.
Read more
From Mint:
From 2020 to 2022, the firm told clients that between 70% and 94% of parent company Invesco Ltd.’s AUM were “ESG integrated,” the agency said in a news release Friday. In a 2020 presentation to a large wealth management firm, Invesco Advisers touted “Our Commitment to ESG” and called itself a “Trusted Partner in Responsible Investment,” according to the SEC’s order.
But the regulator alleged that a “substantial” amount of assets were held in passive exchange-traded funds that didn’t consider ESG factors. In addition, the SEC claimed Invesco Advisers lacked any written policy on what ESG integration meant.
“Companies should be straightforward with their clients and investors rather than seeking to capitalize on investing trends and buzzwords,” Sanjay Wadhwa, acting director of the SEC’s Division of Enforcement, said in a statement.
In the spotlight
Trump anti-ESG policies could affect global competitiveness, editorial argues
Oliver Shaw—the associate editor of London’s Sunday Times—argued in a Nov. 10 column that anti-ESG policies during Trump’s second term could create competitive advantages for American companies compared to European businesses, which have to comply with stricter ESG regulations. According to Shaw:
The ESG arbitrage between the US and the rest of the West — the UK and Europe — was already sizeable before voters decided Trump needed to Make America great again, again. The divergence in performance between poor old BP and ExxonMobil — which doubled down on oil and gas with a $60 billion takeover of shale-oil producer Pioneer, then sued two activists that sought to curb its carbon emissions — has been stark. American executives, especially in hot sectors such as tech, have long enjoyed more leeway than their transatlantic peers to behave and pay themselves as they like.
The gap will yawn wider under Trump 2.0. Elon Musk, Trump’s star outrider and owner of the world’s biggest bully pulpit, in the form of X, has called ESG “a scam” and “the devil”. Analysts at Jefferies last week encouraged ESG fund managers “to have a lawyer on the team, or on speed-dial”. They predicted a new era of “greenhushing” under Trump, where companies and investors would try to keep their work on ESG quiet.
Aside from changing the overall tone, the incoming administration is likely to take hard measures. The Securities and Exchange Commission (SEC), Wall Street’s main regulator, has been a big source of pro-ESG rules. Trump has already said he wants to sack its chairman, Gary Gensler — although that promise related to Gensler’s aversion to cryptocurrencies rather than his fondness for ESG. The SEC has softened and then delayed imposing climate-disclosure requirements it first proposed in March 2022. Those may now bite the dust — or, perhaps more accurately, the shale. The SEC has also been criticised for its leniency towards activists filing ESG-related resolutions, the kind that have vexed Exxon. Again, that leniency may now evaporate.