In this week’s edition of Economy and Society:
- Treasury proposes ESG restrictions for Trump Accounts
- DOE funds seven critical mineral, battery projects
- World Bank sustainable bond draws $11 billion
- New Zealand passes law shielding firms from climate lawsuits
- Study finds ESG downgrades hit shares harder when investor expectations are high
In Washington, D.C.
Treasury proposes ESG restrictions for Trump Accounts
What’s the story?
The Treasury Department and Internal Revenue Service (IRS) proposed a rule on Aug. 21, 2026, that would exclude funds focused on environmental, social, and corporate governance (ESG) factors from Trump Accounts. Trump Accounts are a type of traditional individual retirement account (IRA) with special rules that generally apply until the child turns 18. The proposed rule is scheduled to accept public comments through Oct. 20, 2026.
Under the proposal, eligible investments generally would be mutual funds or exchange-traded funds (ETFs) that track broad equity indexes composed primarily of U.S. companies. Funds that track an index focused on ESG factors, or that advertise it as an ESG index, would not qualify. Account trustees would have to review investments annually and remove a fund within 30 days if it became ineligible.
Treasury Secretary Scott Bessent said, "These accounts exist to build financial security for America's children, not to advance political activism or ideological agendas."
Why does it matter?
The proposal would extend the Trump administration's opposition to ESG investing to a new federally authorized savings program. Treasury's economic analysis cited a meta-analysis that said "ESG investing returns were generally indistinguishable from conventional investing returns."
According to Morningstar data cited in the rule, sustainable funds, a category that includes funds tracking ESG, made up less than 2% of the $19.4 trillion held in U.S. passively managed mutual funds and ETFs at the end of 2025.
A Treasury representative said more than seven million families had signed up for Trump Accounts as of Aug. 20, including more than two million eligible for a $1,000 federal pilot program contribution.
What’s the background?
Congress established Trump Accounts under the One Big Beautiful Bill Act (OBBBA), signed into law July 4, 2025. Parents can open an account for a child under 18 and contribute up to $5,000 annually. Employers may contribute up to $2,500 per employee or dependent, with those contributions counting toward the $5,000 cap. The federal government's $1,000 seed deposit applies only to children born from 2025 through 2028; that provision is scheduled to expire Jan. 1, 2029.
The OBBBA authorized the Treasury Department to set additional eligibility criteria, which the Treasury is proposing to do through the ESG restrictions in the rule.
DOE funds seven critical mineral, battery projects
What’s the story?
On Aug. 20, 2026, the U.S. Department of Energy's (DOE's) Office of Critical Minerals and Energy Innovation announced $500 million for seven selected projects to expand critical mineral and material processing, battery manufacturing, and recycling capacity in the U.S. It is the third round of funding from DOE's Battery Materials Processing and Battery Manufacturing and Recycling programs, which support demonstration projects, commercial facility construction, and the retrofitting of existing facilities.
Energy Secretary Chris Wright said, "For too long, America has depended on foreign actors for critical materials essential to modern life that underpin our economy, energy security, and national security." He continued that "President Trump is reversing that dependence by securing our critical supply chains, unleashing American industry, and bringing critical materials production and processing back to the United States."
Selected projects include:
- a Southeastern U.S. facility that would refine used lithium-ion batteries and manufacturing scrap into battery-grade materials, operated by Nth Cycle
- a Georgia demonstration facility that would recover nickel-containing cathode material from battery manufacturing scrap, operated by Princeton NuEnergy
- a Gulf Coast facility built by Arcanum Ventures that would produce battery-grade ethylene carbonate, an ingredient in lithium-ion battery electrolytes.
Why does it matter?
DOE framed the funding around domestic manufacturing, reduced reliance on foreign suppliers, and national security rather than climate or clean-energy goals. Critical minerals and battery materials are also used in electric vehicles and energy storage, so the funding could incidentally support energy transition and cleantech supply chains, though that is not the program's stated purpose.
What’s the background?
On Jan. 20, 2025, Pres. Donald Trump (R) signed executive order Unleashing American Energy, which directs the Secretary of Energy to "ensure that critical mineral projects, including the processing of critical minerals, receive consideration for Federal support, contingent on the availability of appropriated funds."
The Battery Materials Processing and Battery Manufacturing and Recycling programs were created under the Infrastructure Investment and Jobs Act of 2021 signed by Pres. Joe Biden (D), which allocated $3 billion to each program.
Around the world
World Bank sustainable bond draws $11 billion
What’s the story?
The World Bank raised $4 billion through a seven-year Sustainable Development Bond on Aug. 18, 2026, attracting more than $11 billion in orders from more than 150 investors. The bond will pay 4.5% interest semiannually and mature in August 2033. Banks, bank treasuries, and corporations accounted for 43% of investors, followed by central banks and official institutions at 30%. Asset managers, insurers, and pension funds accounted for 27%. Investors based in Europe, the Middle East, and Africa purchased 42% of the bonds, followed by the Americas at 38% and Asia at 20%.
World Bank Group Vice President and Treasurer Jorge Familiar said, "This 7-year Sustainable Development Bond demonstrates the confidence that high-quality investors place in the World Bank’s mission and its ability to mobilize capital for sustainable development."
Why does it matter?
The $11 billion in orders — nearly three times the $4 billion issued — indicates strong demand for the World Bank's Sustainable Development Bonds. The bonds finance the World Bank's general lending for sustainable development projects and programs in member countries, including projects with environmental and social objectives.
However, unlike some green or sustainability bonds, proceeds from this issue are not earmarked for particular projects or programs. The World Bank states that its Sustainable Development Bonds support its overall financing of projects and programs intended to advance sustainable development goals.
New Zealand passes law shielding firms from climate lawsuits
What’s the story?
New Zealand’s Parliament passed legislation on Aug. 19, 2026, preventing companies from being held liable in civil lawsuits for climate-related harm caused by their greenhouse gas emissions. The law amends the country’s Climate Change Response Act 2002 to bar courts from imposing liability for climate change damage or harm based on greenhouse gas emissions.
Justice Minister Paul Goldsmith said the law would provide businesses with "certainty around their climate change obligations." He said, "The courts are not the right place to resolve claims of harm from climate change, and tort law is not well-suited to respond to a problem like climate change which involves a range of complex environmental, economic and social factors."
The government introduced the legislation in May 2026 in response to lawsuits brought by climate activist Mike Smith against six of New Zealand's largest corporate emitters, including dairy company Fonterra. New Zealand's Supreme Court had allowed Smith's claims to proceed, and the cases were expected to go to trial in 2027. Goldsmith said the litigation "risks developing a new regime that contradicts the framework Parliament has already enacted. It's creating uncertainty in business confidence and investment."
Smith said that "if Parliament can cancel a live court case, then no legal claim is secure at all, once it becomes politically inconvenient."
Greenpeace called the law "yet more evidence of corporate capture within the Coalition Government." Greenpeace Programme Director Niamh O'Flynn said, "This Government has allowed corporate polluters to write the policy on everything from fresh water to climate change. Now, they're attempting to take away our avenues to challenge those polluters."
Why does it matter?
The law removes one potential avenue for holding companies liable for their greenhouse gas emissions and shifts responsibility for setting climate obligations from the courts toward Parliament and existing climate regulations. This dispute reflects a broader debate over whether courts should develop new forms of corporate liability for climate change or whether governments should determine companies' obligations through legislation and regulation.
What’s the background?
Smith filed claims against Fonterra, Genesis Energy, Dairy Holdings, New Zealand Steel, Z Energy, and Channel Infrastructure alleging that their greenhouse gas emissions contributed to climate-related harm. His claims included public nuisance, negligence, and a proposed new tort involving damage to the climate system, rather than a specific person or property.
Lower courts initially struck out the claims, but the New Zealand Supreme Court unanimously ruled in February 2024 that the case could proceed to trial. The court did not determine whether the companies were liable, instead finding that Smith's arguments should be tested at trial.
On Wall Street and in the private sector
Study finds ESG downgrades hit shares harder when investor expectations are high
What’s the story?
A study published in the International Review of Economics & Finance found that stock price declines are sharper when a company's ESG rating is downgraded — meaning a rating provider lowers its assessment of the company's ESG practices — if investors were previously optimistic about the company. Researchers at Australia's Murdoch University analyzed more than 6,700 ESG rating changes among S&P 500 companies from 2010 to 2024, comparing the changes with cumulative abnormal returns — stock performance that deviates from what would normally be expected — around the rating-change event.
The study found that ESG downgrades were followed by sizable stock price losses beyond what would normally be expected, while upgrades produced only weak, short-lived market responses. Researchers measured investor sentiment using company-specific news and social media data across five categories: positive tone, negative tone, risk, volatility, and management-related sentiment. Positive sentiment emerged as the strongest factor shaping how markets reacted to downgrades — stronger than fear, risk, or concerns about management.
Lead author Phu Ngoc Tran, a lecturer at Murdoch Business School, said, "We wanted to investigate whether investor sentiment towards a firm influenced how the market reacted to ESG rating changes."
Co-author and senior lecturer in finance at Murdoch Business School Ariful Hoque said, "What surprised us was that positive sentiment had a much greater influence than other forms of investor sentiment, such as fear, risk, or concerns about a firm's management."
Why does it matter?
The findings suggest investors react more strongly to ESG downgrades when the news contradicts a previously favorable view of a company, meaning market sentiment can shape how much a downgrade actually costs a company. The study found this sentiment-driven effect was largest for small firms and those with weaker pre-existing ESG profiles, rather than large or high-reputation firms, which the researchers attributed to greater informational frictions — such as limited analyst coverage and more uncertainty about ESG quality — for smaller, less-established companies.
Tran said, "Our findings show that the same ESG downgrade can have very different market impacts depending on investor expectations at the time."
In the states
Last week, Ballotpedia published its 2026 report on enacted ESG legislation, examining state legislative activity and trends in ESG policy through 2026. The report includes enacted legislation, policy approaches, and differences among states based on trifecta status.
Click here to read last week's edition of Economy and Society. You can also click here to see Ballotpedia's analysis of enacted ESG legislation from 2020 through 2026.