In this week’s edition of Economy and Society:
- British government drafts legislation to allow ESG ratings regulations
- EU to consider consolidating ESG reporting regulations
- New York City pension system joins net zero asset group
- Vanguard to expand investor choice program
- Donald Trump, Jr. to join anti-ESG venture capital firm
Around the world
British government drafts legislation to allow ESG ratings regulations
What’s the story?
The British government is circulating draft legislation that would allow the Financial Conduct Authority (FCA) to issue regulations for ESG rating services. Parliament is expected to introduce a finalized version of the legislation sometime next year.
Why does it matter?
If introduced and enacted, the draft legislation could allow British regulators to create stricter transparency requirements for ESG scores and set standards for easier comparisons between rating systems.
What’s the background?
The UK conducted a consultation (a process for the government to gather public input) last year to assess the need for possible ESG rating regulations. The draft legislation is based on findings from that process and recommendations from the International Organization of Securities Commissions (IOSCO).
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According to ESGToday:
Under the proposed legislation, ESG ratings providers would be required to become authorized by the FCA, and meet a series of conditions an assessment of the providers’ supervisory effectiveness, business model, and other requirements. The regulations would apply both to “ratings produced in the UK and ratings produced overseas which are made available to UK users by way of a business relationship.”
The government’s consultation response outlined an anticipated four-year process for the launch of the ESG ratings regulatory regime, with legislation expected to be introduced in early 2025, followed by the development and consultation of policy proposals for the regulation by the FCA, after which affected firms will go through the authorization process, with the regime then going live.
The proposal also outlines exclusions from regulatory coverage for some ESG ratings providers, such as credit ratings and investment research providers that are already covered by FCA regulation that provide ESG ratings as part of existing activities, and not as a standalone rating.
EU to consider consolidating ESG reporting regulations
What’s the story?
European Commission President Ursula von der Leyen said Nov. 8 that some current and potential future EU ESG reporting regulations would be combined into one comprehensive package as early as next year.
Why does it matter?
Von der Leyen argued the omnibus regulation would make compliance easier for EU-based corporations.
What’s the background?
Some companies, including TotalEnergies SE, have previously claimed the EU’s ESG/climate reporting regulations were burdensome and put them at a disadvantage against American competitors. To read more about those complaints, click here.
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According to Latham & Watkins:
[V]on der Leyen stated that the “often overlapping” reporting requirements included in the Corporate Sustainability Reporting Directive (CSRD), EU Taxonomy Regulation, and Corporate Sustainability Due Diligence Directive (CSDDD) would be combined in an effort to “reduce bureaucracy”. The new omnibus regulation is set to be published in 2025. …
While the full content and timeline of the omnibus regulation are yet to be confirmed, the EU clearly views a trimming of regulatory red tape as a key part of its attempts at increasing its competitiveness in the coming years.
Competitiveness has been a key focus of the EU in recent months. The July 2024 Political Guidelines for the Next European Commission 2024-2029 (Political Guidelines) include a new plan for Europe’s “Sustainable Prosperity and Competitiveness”, underscoring the need to “make business easier”. In this context, the Political Guidelines mention that the Commission will make proposals to “simplify, consolidate and codify legislation” in order to eliminate overlaps, “while maintaining high standards”.
In the states
New York City pension system joins net zero asset group
What’s the story?
The New York City Employees’ Retirement System (NYCERS)—under the direction of city Comptroller Brad Lander (D)—joined the Net-Zero Asset Owner Alliance (NZAOA), extending its commitment to ESG investment strategies. NZAOA’s members manage more than $9.5 trillion and commit to using their investments to reduce carbon emissions.
Why does it matter?
The NYCERS move is a public divergence from recent private asset manager trends. While the city’s pension system is expanding its ESG investing commitments, large companies—including Blackrock, JP Morgan Chase, and State Street—have withdrawn from or scaled back their relationships with global climate investment alliances this year.
Lander has also promoted his ESG record in his 2025 NYC mayoral campaign, meaning the move could become a topic in the race.
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According to ESG News:
By joining NZAOA, NYCERS aligns with a coalition dedicated to transitioning investment portfolios to net-zero greenhouse gas emissions. Alliance members have set ambitious targets, reducing absolute financed emissions by at least 6% annually on average, as reported in NZAOA’s fourth Progress Report.
Among U.S.-based members, NYCERS joins organizations like CalPERS, Wespath, the David Rockefeller Fund, Jessie Smith Noyes Foundation, and The Russell Family Foundation.
On Wall Street and in the private sector
Vanguard to expand investor choice program
What’s the story?
Vanguard—the second-largest asset management firm in the world—announced it will allow more investors to vote the shares underlying their funds in the 2025 proxy season. Three additional funds will offer the option, doubling the number of Vanguard clients offered the choice.
Why does it matter?
ESG opponents have criticized large passive asset management firms for voting in favor of social and environmental corporate policies on behalf of fund investors. Investor choice programs like Vanguard’s allow individuals to vote their preferences in shareholder elections, including on proposals related to ESG.
Read more:
According to The Financial Times:
Nearly 4mn people controlling up to $250bn in shares in US companies will now be able to choose one of five options, which also include letting Vanguard make the decision, voting with management, prioritising environmental, social and governance factors or in effect voting “present”.
The addition of a profits-above-politics option comes as Vanguard and other large asset managers try to navigate a conservative backlash against ESG without angering customers who remain committed to fighting climate change and social inequality.
“It’s a response to feedback from investors,” said John Galloway, Vanguard’s global investment stewardship officer. “Investors have different perspectives on what they believe maximises shareholder value.”
In the spotlight
Donald Trump, Jr. to join anti-ESG venture capital firm
What’s the story?
Donald Trump, Jr. announced last week that he will join 1789 Capital—a Palm Beach, FL-based venture capital firm founded by Omeed Malik and Christopher Buskirk—as a partner. 1789 Capital’s website says the company invests in “sectors that have been negatively impacted by such [ESG] principles.”
Why does it matter?
Although Trump, Jr. will not take a role at the White House, ESG critic Stephen Soukup argues the partnership—along with President Trump’s anti-ESG picks for his administration—could indicate future policy shifts opposing the practice.
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According to Business Insider:
The firm bills itself as “anti-ESG” — an acronym for companies that say they commit to certain environmental, social justice, and corporate governance-focused principles. One of 1789’s areas of interest is in companies or industries that have faced negative effects of ESG, its website says. It also focuses on what it calls deglobalization, building out an economy that is parallel to the traditional one, and disrupting industries it deems weighed down by excessive bureaucracy.
Like 1789 Capital, Trump Jr. has long been a proponent of the parallel economy, also called the “patriot economy,” a term used by MAGA conservatives to refer to businesses that align with their traditional values.
And Trump Jr.’s connection to Malik, the president of 1789 Capital, includes the pair’s mutual support of a parallel economy platform called PublicSquare.