The Federal Government is Not the Only One Tipping the Scales on ESG Issues
For sustainable investors, the incoming Trump administration doesn’t feel like good news. The specifics of the Trump agenda remain uncertain, but his dislike of sustainability is well documented and his proposed cabinet is fraught with unfriendly faces. But if you’re wondering whether the support for sustainability has evaporated, we’ve got good news.
In this month’s Just Money, we’re looking at all the other bodies, domestically and internationally, who have their fingers on the scale of ESG discourse, regulations, and enforcement. While the US Federal Government tends to dominate the news, there is a wide web of state governments, international organizations, non-governmental organizations (NGOs), and corporate heads and other private sector initiatives that can and will significantly shape the ESG landscape.
One thing in particular that we’re looking for are organizations that can and will advance the quality and quantity of ESG-related reporting produced by companies. That’s the driver of ESG analysis, after all, which underpins the best sustainable funds available today. Let’s start with an obvious one.
Oh Yeah – The States
States have already been having their say in the ESG space, although not always with the best of intentions. The loudest and most prominent examples of this have been the misguided ‘bans’ of ESG investing in deep red states that have done little besides costing their taxpayers hundreds of millions of dollars.
Under the Trump administration, left-leaning state governments will continue to address ESG concerns, providing a crucial counterbalance to actions from Washington DC. Unsurprisingly, the most prominent example of this is California, with their environmental regulations leading the way. Their strict greenhouse gas emission standards and renewable energy mandates have often surpassed federal requirements. For example, California’s Global Warming Solutions Act mandates significant reductions in emissions and has influenced other states to adopt similar measures. Another as-expected participant in these regulations, New York, has enacted the Climate Leadership and Community Protection Act, which aims to achieve net-zero greenhouse gas emissions by 2050.
On social issues, states have also taken the lead. Again, looking to California (that will likely be a typical refrain over the next 4 years), they recently passed a ruling that requires publicly traded companies headquartered in the state to report diversity data about their boards of directors.
While the patchwork nature of state regulations is a far cry short of what a federal ruling can do, the fact that these states can and will use their power in this way will keep data flowing for ESG investors.
Oh Yeah, Part 2 – The Rest of the World
International organizations and treaties provide another layer of support for ESG initiatives. The EU, for example, has traditionally been a few steps ahead of the US on sustainable investing issues, and that will likely continue over the next few years. The widely discussed Paris Agreement, a global treaty adopted by the UN, commits its signatories to limit global warming to well below 2 degrees Celsius. Although the United States will likely leave the agreement as it did during the first Trump administration, the commitments from other nations and states across the world will continue to have impact.
Beyond environmental concerns, international standards will continue to be in place regardless of the Trump administration’s participation. The United Nations’ Sustainable Development Goals (SDGs), long seen as a sort of North Star for the ESG community, provide a framework for ESG initiatives worldwide, and will continue to shape corporate policies and investor strategies. Other similar initiatives include the Sustainable Finance Disclosure Regulation (SFDR) and the Corporate Sustainability Reporting Directive (CSRD). These global pacts reflect a collective will to advance the ball on ESG issues, even when certain administrations may deprioritize them.
Non-Governmental Organizations and Advocacy Groups
NGOs and advocacy groups have survived unfriendly governments before, and surely they will do so again. Regardless of who is in the White House, on the environmental side, organizations like the Carbon Disclosure Project (CDP) and the Global Reporting Initiative (GRI) will continue to provide frameworks for environmental reporting, encouraging companies to disclose their carbon footprints, water usage, and other sustainability metrics.
Similarly, social advocacy groups, such as Human Rights Watch and Oxfam, will continue to pressure companies to improve labor practices, ensure human rights compliance, and adopt fair trade principles. These organizations often collaborate with governments and international bodies to enforce ESG norms indirectly, leveraging public opinion and shareholder activism to drive change. Their work offers a vital check on corporate practices, particularly during periods of reduced federal oversight.
In a world where concerned citizens (and, importantly, donors) are looking for ways to buttress support of ESG issues, these organizations will be on the front lines and may receive additional funding to do so. These organizations will continue the hard work of developing and improving tools and standards necessary for transparent reporting.
Corporate Initiatives
While Trump and his colleagues are fond of calling ESG initiatives “anti-business”, the actual business world doesn’t seem to think so. While 2024 saw numerous well-publicized examples of companies dismantling their DEI programs, these actions still qualify as exceptions to the rule.
A Morning Consult report from 2024 indicated that 82% of business leaders think diversity initiatives should play a fundamental role in their business strategies. And about half of those surveyed said that their primary reason for supporting DEI is that it improves business performance, opens the door to a wider range of high-quality talent, and increases corporate creativity. So while many executives are quieter about DEI than they once were, and about ESG more broadly, they broadly remain proponents.
Sustainable Investors and the Funds They Invest In
You – yes, you – are having your influence too. Analysis released last month by US SIF found that approximately $6.5 trillion, or about 12% of the US market, is invested in sustainable funds. Many of those funds rely on important data disclosures from companies to perform their analysis and identify companies to include (or often, exclude) from their funds.
In this way, to some extent, ESG investing is a bit of a self-fulfilling prophecy. The more funds that use ESG data, the more companies will need to provide that data if they want to be included in those funds. While we have seen some high-profile examples of companies opting out of doing so – for example a number of companies have stopped reporting data to the Human Rights Campaign, an LGBTQ+ advocacy group – the fact is that shutting yourself off to 12% of investors for the sake of not reporting data is in general a bad business decision.
—-
So yes, the headlines are bad and may continue to be so for a while. But beyond the headlines, you will see a lot of sustainable business-as-usual, as states, international groups, NGOs, corporate executives, and sustainable investors like you continue to fight the good fight. If anything, being a sustainable investor is even more important in times like these. Keep calm, and invest on!
