In this week’s edition of Economy and Society:
- European group proposes streamlined ESG reporting standards
- Republican states pressure financial firms on ESG practices
- Judge allows state lawsuit against asset giants to proceed
- Massachusetts, North Carolina, and Texas take action on ESG-related bill
- Barclays quits Net Zero Banking Alliance
- Study links new Delaware law to drop in shareholder value
Around the world
European group proposes streamlined ESG reporting standards
What’s the story?
The European Financial Reporting Advisory Group (EFRAG) published its proposed reporting standards for corporations last week under the EU’s Corporate Sustainability Reporting Directive (CSRD), reducing the reporting requirements by roughly two-thirds.
Why does it matter?
The EU has been working for several months to develop a new approach to sustainability reporting standards, aiming to remain competitive with the United States, where the Trump SEC has reversed course and indicated its intention not to defend or redo Biden-era reporting rules. EFRAG’s publication marks a significant step in the process.
What’s the background?
Click here for more information on the EU’s efforts. Click here for more information on the SEC’s decisions.
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According to ESG Today:
Among the key changes from the initial ESRS, the new standards remove all voluntary disclosures, and reduce reporting datapoints by 68%, going even beyond EFRAG’s recent estimate of a 66% reduction.
The initiative to update ESRS forms part of the European Commission’s Omnibus I proposal aimed at significantly reducing the sustainability reporting and regulatory burden on companies, targeting regulations including the CSRD, as well as the Corporate Sustainability Due Diligence Directive (CSDDD), the Taxonomy Regulation, and the Carbon Border Adjustment Mechanism (CBAM). …
In a statement announcing the release of the new draft standards, EFRAG said that it “focused on cutting complexity and improving usability,” and that its work included extensive consultations with companies already reporting under the CSRD, as well as with those preparing to begin reporting under the regulation.
In the states
Republican states pressure financial firms on ESG practices
What’s the story?
Twenty-one (21) states sent a letter to several financial services companies last week urging them to stop using ESG considerations in their investment practices, including corporate engagement, and to focus on “traditional fiduciary duty.”
Why does it matter?
The letter was signed by 26 state financial officers – treasurers and auditors – and was sent to 26 wealth and asset managers, asking them to respond to questions and concerns by September 1. State financial officers oversee public investments and have played a central role in efforts by Republican states to prohibit investing state funds with firms that use ESG criteria.
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According to The New York Post:
“While some firms have recently taken encouraging steps, such as withdrawing from global climate coalitions and scaling back ESG rhetoric and proxy votes, and some states have permitted incremental reintegration, more work must be done,” officials said in a copy of the letter obtained by The Post.
“Our responsibility is to ensure public assets are managed in the best financial interest of beneficiaries and taxpayers. We expect detailed evidence that your firm’s investment practices, proxy voting and corporate engagement behavior…align with traditional fiduciary standards.”
“Requiring America’s financial giants to prove their independence from woke ideology with concrete steps before doing business with a state’s dollars is fully necessary and just makes sense,” OJ Oleka, CEO of State Financial Officers Foundation, said in a statement.
Judge allows state lawsuit against the three largest asset managers to proceed
What’s the story?
District Judge Jeremy Kernodle denied a motion last week by the three largest passive asset management firms – BlackRock, State Street, and Vanguard – to dismiss a lawsuit filed by Republican state attorneys general in late 2023, accusing the firms of conspiring to reduce the mining and usage of coal.
Why does it matter?
The lawsuit alleges the firms used their collective market power to pressure coal producers to reduce output as part of their energy transition efforts. The states claim this conduct was collusive and drove up consumer energy prices. Judge Kernodle ruled that there is enough evidence for the case to proceed.
What’s the background?
Click here for more on the filing of the lawsuit.
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According to Bloomberg:
In his Friday ruling, Kernodle said the states “have identified enough circumstantial evidence to suggest that defendants agreed to collectively pressure coal companies to reduce the output of coal in the relevant markets and disclose future output information.”…
In their lawsuit, Texas and other Republican-led states claimed the asset managers colluded to pressure coal producers to reduce their production under the guise of pursuing environmental goals. The states cite the firms’ participation in carbon-reduction alliances as evidence of a “syndicate.”…
BlackRock, State Street and Vanguard hold major stakes in coal producers and profited when energy prices soared, according to the suit.
Massachusetts, North Carolina, and Texas take action on ESG-related bills
Three states (Massachusetts, North Carolina, and Texas) took action on six ESG-related bills last week (since July 29). The bills in Massachusetts concerned ESG state contract and licensing approaches. The bills in North Carolina and Texas concerned anti-social credit scoring and anti-discrimination approaches. No bills advanced from one chamber to another, passed both chambers, or were enacted.
States with legislative activity on ESG last week are highlighted in the map below. Click here to see the details of the bill in the legislation tracker.
On Wall Street and in the private sector
Barclays quits Net Zero Banking Alliance
What’s the story?
Barclays – one of the three largest banks in the United Kingdom – announced last week that it is leaving the Net Zero Banking Alliance (NZBA).
Why does it matter?
American and Canadian banks began exiting NZBA at the end of 2024. While the Alliance modified its goals and requirements earlier this year, that hasn’t stopped the trend. HSBC, Britain’s largest bank, exited the group last month.
What’s the background?
Click here for more on HSBC’s departure from NZBA.
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According to ESG Today:
The departures of Barclays and HSBC follow the exit of all major Wall Street banks, as well as their Canadian peers earlier this year, after members of the group started to come under significant pressure, particularly from Republican politicians in the U.S., who have been warning financial institutions including banks, insurers, asset owners and investors of potential legal violations from their participation in climate-focused alliances and of plans to exclude the companies from state business, as part of a broader anti-ESG political campaign. A few other major banks have also recently announced exits including Australia’s Macquarie, and Japan’s Sumitomo Mitsui.
In a statement released by Barclays announcing its exit, the bank said that “with the departure of most of the global banks, the organisation no longer has the membership to support our transition.”
The statement reiterated Barclays’ commitment to its “ambition to be a net zero bank by 2050,” and that it was maintaining its goal to mobilize $1 trillion in sustainable and transition finance by 2030, as well as its financed emissions targets. Earlier this week, Barclays revealed that it earned approximately £500 million (USD$660 million) in revenues from sustainable and transition finance activities in 2024, and that it has reached cumulative volumes of $220.2 billion towards its $1 trillion goal, with activity accelerating over the first half of 2025.
From the Ivory Tower
Study links new Delaware law to drop in shareholder value
What’s the story?
A new study by Kenneth Khoo and Roberto Tallarita, law professors at National University of Singapore and Harvard Law School, respectively, found that a recent change made to Delaware corporate law had an immediate and negative effect on Delaware corporations – and likely eroded shareholder value.
Why does it matter?
Most academic research on ESG has focused on environmental or social factors, with less attention to how governance changes affect corporate value. This study focuses on a state-level governance reform and suggests that relaxing governance rules may reduce shareholder value.
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According to Khoo and Tallarita:
At the heart of SB 21 lies a fundamental shift in how Delaware law polices conflicts of interest involving controlling shareholders — the proverbial “800‑pound gorillas” of the corporate world. For years, Delaware courts protected minority investors through a “double‑cleansing” safeguard: controller transactions could escape the courts’ strict entire fairness review only if they won approval by both (1) a fully empowered special committee of independent directors and (2) a majority of the minority shareholders. SB 21 overturns this legal regime. …
First, Delaware companies as a whole lost significant value. After the announcement of SB 21, Delaware firms recorded abnormal negative returns relative to non‑Delaware peers. On average, this under‑performance was 1.4% over our main event window—even after controlling for firm size, profitability, leverage, and other characteristics. In dollar terms, that fall represents roughly $700 billion in lost market capitalization for the Delaware companies in our sample. …
Overall, these findings suggest that investors seemed comfortable with the existing “double cleansing” protections; the pronounced negative reaction to SB 21 likely reflects concern over seeing those safeguards dismantled.