In this week’s edition of Economy and Society:
- Trump announces pick for next SEC chairman
- QatarEnergy CEO argues against European ESG regulations
- Financial firms leave climate agreements
- Climate group argues for Scope 3 emissions regulation
- Study argues retail investors care about the financial impact of ESG
In Washington, D.C., and around the world
Trump announces pick for next SEC chairman
What’s the story?
President-elect Donald Trump announced last week that he will nominate Paul Atkins as the next Securities and Exchange Commission (SEC) chairman.
Why does it matter?
Atkins’ views on ESG differ from those of current SEC Chairman Gary Gensler. For example, Atkins wrote a letter opposing the SEC’s 2022 proposed climate disclosure rules, arguing they overstepped the agency’s delegated authority.
What’s the background?
SEC Chairman Gary Gensler previously announced Nov. 21 that he will leave his position effective Jan. 20, 2025, at the end of Joe Biden’s (D) presidency.
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According to ESGDive:
Atkins has also offered differing views from Gensler on climate-related disclosures.
When the Gensler-led agency first proposed the climate-risk disclosure rule in March 2022, Atkins — along with other former SEC commissioners and chairmen — penned a comment letter to the agency in June of that year. Atkins and the fellow former commissioners said the proposal “oversteps the Commission’s congressionally delegated regulatory authority.” The letter’s signatories also added that the “Commission’s rulemaking powers simply do not authorize it to require disclosure of the vast quantities of immaterial information” as described in the proposal. …
[Michael] Posner [director of the Center of Business and Human Rights at New York University’s Stern School of Business] told ESG Dive that the new SEC administration may also roll back to the notion that “ESG considerations are not material and should not be part of decision-making,” when defining fiduciary duty. He added that the Atkins-led agency would likely have a “light footprint” and operate as a “laissez-faire administration” when it comes to regulating the industry.
QatarEnergy CEO argues against European ESG regulations
What’s the story?
Saad Al-Kaabi—the Qatari government’s minister of state for energy affairs and CEO of QatarEnergy—suggested the country might stop supplying liquid natural gas (LNG) to Europe if the region’s ESG reporting requirements impose excessive penalties or liabilities.
Why does it matter?
The EU’s Corporate Sustainability Due Diligence Directive may deter fossil fuel suppliers from providing energy to Europe.
Read more
According to Bloomberg:
A new European directive setting strict ESG reporting standards for large firms operating in the EU creates challenges that make “absolutely no sense” for companies like QatarEnergy, according to its chief executive officer. …
“I am sure not going to supply the EU with LNG to support their energy requirements and then be penalized with our total revenue worldwide,” Al-Kaabi said on Saturday, in reference to the EU’s Corporate Sustainability Due Diligence Directive.
The directive, which came into force in July, outlines steps that large companies must take to identify and address adverse human rights impacts, such as child labor, as well as climate issues and other factors. It mandates detailed corporate transition plans and opens businesses to lawsuits if there are violations in their value chains.
On Wall Street and in the private sector
Financial firms leave climate agreements
What’s the story?
Goldman Sachs and Frankin Templeton announced last week their companies had left the Net-Zero Banking Alliance (NZBA) and Climate Action 100+, respectively.
Why does it matter?
The departures continued the trend of large American companies leaving financial climate initiatives this year. Banks and other financial firms have faced pressure from elected officials over their participation in climate agreements, with some attorneys general alleging participation could violate anti-trust laws.
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According to Reuters:
Goldman Sachs said it has quit a sector coalition aimed at aligning bank lending and investment activities with global efforts to fight climate change, becoming the most high-profile member to leave the group.
The U.S. investment bank’s decision comes against a backdrop of pressure from some Republican politicians who have suggested that membership of the Net-Zero Banking Alliance (NZBA) could breach anti-trust rules.
Goldman Sachs gave no explicit reason for its departure, but focused on its strategy for the future and a growing push by regulators to make sustainability efforts mandatory.
According to Responsible Investor:
Franklin Templeton has withdrawn from Climate Action 100+, Responsible Investor can reveal.
The $1.5 trillion US asset manager said in a statement that after “careful thought and consideration”, it had decided not to renew its status as a signatory with CA100+, effective 1 December. …
Three Franklin Templeton subsidiaries, Brandywine Global, Western Asset Management and Clearbridge Investments, have also previously dropped out of CA100+.
Climate group argues for Scope 3 emissions regulation
What’s the story?
The Net-Zero Asset Owner Alliance released a report last week arguing that regulators should require corporations to report Scope 3 (supply chain and post-production consumer) emissions data.
Why does it matter?
The report opposes the current direction of U.S. ESG policy. The SEC’s final rules on emissions reporting dropped the Scope 3 requirement, and the SEC likely will not pursue any reporting requirements if Paul Atkins is confirmed as chairman.
What’s the background?
For more information on Scope 3 emissions and their part in the final SEC rules on emissions reporting, click here.
Read more
According to Bloomberg:
NZAOA said its report, entitled “Tackling Hidden Emissions for a Net-Zero Transition,” represents an attempt to open “a meaningful discussion” with policymakers, companies and asset owners about how to overcome the many challenges posed by Scope 3 emissions. The group, which includes Allianz SE and the California Public Employees’ Retirement System, said while it’s critical for signatories to consider Scope 3 pollution, integrating those emissions into carbon accounting and target setting “is highly challenging” due to a lack of a standardized methodology, an overreliance on models for estimating emissions and limited availability of data.
Even so, it’s time for investors to stop making excuses and face up to this most vexing of problems, said Udo Riese, global head of sustainable investing at Allianz Investment Management and co-lead of the monitoring, reporting and verification workstream at NZAOA.
“Everyone is complaining about how difficult it is, and the conclusion usually is I can’t do anything,” Riese said in an interview. “We need to move on from saying yes we should do it, but we can’t do it.”
From the Ivory Tower
Study argues retail investors care about the financial impact of ESG
What’s the story?
A study co-authored by Edward Watts—an assistant professor at the Yale School of Management—says retail trading increases after companies report ESG news but that investors primarily care whether the news affects the company’s financial or stock performance.
Why does it matter?
The study argues that if environmental or social goals conflict with financial outcomes, retail investors tend to trade on financial considerations.
Read more
According to Yale Insights:
For their new paper, Watts, Stanford PhD student Qianqian Li, and Christina Zhu of the Wharton School examined the behavior of retail investors around more than 54,000 ESG-related news events for nearly 3,300 publicly traded firms between 2015 and 2022. Over that time, they found, retail trading increases by 6% on ESG news days compared to non-event days (and by 8% post-2020). They then went further to try to determine why trading increased: Are investors motivated by non-pecuniary reasons, like a desire to be socially responsible? Or are they instead driven by a news event’s potential impact on their returns?
The evidence in the paper points to the latter hypothesis: According to the researchers’ data, investors purchase securities when the implications of the news are positive for their stock’s performance, and they sell when the implications are negative. …
In his class on ESG investing, Watts says, he offers an extreme hypothetical to drive home the point. “It would be very pro-ESG to raise your employees’ salaries by 500 percent,” he says. “But the stock price is going to drop significantly. No investor is going to like that.”