One step forward, two steps back
19 Feb 2025
Will Donald Trump’s return to the White House spell the end for ESG policies, or are financial institutions and investors hopeful for a greener future?
Image: daniela_photography/stock.adobe.com
All has not been well for the state of environmental, social, and governance (ESG) policies in the US. With the US Securities and Exchange Commission (SEC) announcing a pause on defending its climate disclosure rule for financial institutions, along with the formation of new regulations currently on hold across all US federal agencies, there are fears that under Trump’s presidency, ESG policies will be the first to go.
Nor is this the government’s first or solitary attack on climate-related disclosures and information. Although the President’s return to the Oval Office has totalled a mere month, official environmental datasets are being deleted at an alarming rate. The most glaring omission, the National Security Archive notes, has been the removal of the White House pages on the Council of Environmental Quality (CEQ) and the Office of Science and Technology Policy (OSTP), in addition to the other 2,000 datasets that have since disappeared from the government’s website. As banks and asset managers increasingly desert climate coalitions, things are shaping up to be an increasingly sombre state of affairs.
But while the US withdraws from regulation on ESG issues, the EU has instead been ramping-up sustainability and climate disclosure directives. So are investors and financial institutions giving up on ESG, or are they taking matters into their own hands?
Uyeda’s stance
“I am taking action,” says Mark T. Uyeda, acting chairman of the SEC, “on the Enhancement and Standardisation of Climate-Related Disclosures for Investors rule that was adopted by the Commission on 6 March 2024.”
This rule, which requires public companies to disclose information regarding climate-related risks that have, or will be likely to, materially impact a firm’s financial condition and outlook, is one he claims is “deeply flawed” and could “inflict significant harm on the capital markets and the economy”.
Although this was the SEC’s chance to defend the rule against the several lawsuits that had been filed shortly after its implementation, Uyeda has instead requested a pause on the case in the Eighth Circuit Court of Appeals, where it is unclear whether he will defend the rule at all or simply let it be dissolved.
Clearly he has done little (to nothing) to hide the fact he opposed the implementation of the rule from the get-go. In his statement, he has made it known that, “I voted against the rule’s adoption” and “continue to question the statutory authority of the Commission to adopt the rule, the need for the rule, and the evaluation of costs and benefits”.
He also is not the only one who has made his distaste heard. During the proposal hearing in 2024, Hester M. Peirce, commissioner at the SEC, had a few choice words to say about the rule herself.
The rule’s fundamental flaw, she claims, is “its insistence that climate issues deserve special treatment and disproportionate space in Commission disclosures and managers’ and directors’ brain space”. She believes that requiring public disclosures of in-depth climate information would not only reduce a firm’s ability to respond to risks, including climate risks, but would further deter financial institutions from engaging in improving their business practices.
Peirce makes her reservations clear: “The resulting flood of climate-related disclosures will overwhelm investors, not inform them.”
A conscientious investor
Although Peirce’s use of flood is apt considering the widespread implications of climate inaction, the underlying message is apparent: that climate-related disclosures for firms should not be under federal law. However, are investors and financial institutions really feeling the effects of this ‘flood’ of information from climate disclosures, as she claims, or are they still calling for more transparency from firms regarding their sustainability obligations?
Anna-Marie Slot, founder of Transition Value Partners, believes the latter is true. Speaking at the Sustainable Finance Live conference earlier this year, she notes that regulation surrounding sustainability and ESG has seen a “538 per cent increase” since 2017, where the EU in particular “has been probably the most prolific in terms of passing laws around the space”.
Tonia Plakhotniuk, head of sustainable finance policy and regulatory advisory, climate and ESG capital markets at NatWest, elaborates, “the European sustainability reporting standards have been a massive game changer for the market”.
Talking about the Corporate Sustainability Reporting Directive (CSRD) in particular, she continues, “if you’re a corporate or a financial institution with significant presence in the EU, or if you’re listed in the EU, you would have to report under the European Civil Report standards,” where “corporate institutions will have to reflect the potential implications from nature-related risks on their financial performance, as well as the potential negative impacts from the operations of the bank on nature”. In other words, this is the very type of policy that the SEC currently seeks to dismantle.
“But in addition to regulation,” Plakhotniuk muses, “I should say investors are definitely in the driving seat right now”. Her conversations with investors have seen sustainability and climate-related issues at the forefront of discussions, as investors seek to understand the tone from the top: “So what are banks and corporates doing? What is the involvement of the board?”
These sentiments are echoed by Carolina Minio Paluello, CEO of Arabesque AI. For Paluello, the next generation of investors not only desire choice but want their actions to matter. Calling them “the conscious consumer,” Pauello explains how young investors have changed the ways they actively add to their portfolios compared to those of generations before them. She says: “You can see that they are starting to want to buy a different product; it has to be coming from companies that are actually doing the right thing for society, but also for the planet.”
Where this aligns with the current actions of financial institutions is another matter. Macquarie’s departure from the Net Zero Banking Alliance (NZBA) marks another major bank (and the first Australian one) to have exited the group within a two-month period. This is following J.P. Morgan’s exit, along with Morgan Stanley, Bank of America, Citigroup, Wells Fargo, and Goldman Sachs. Although Macquarie credits the NZBA to have helped establish their initial decarbonisation plans, the bank says, “with those building blocks now in place, like many peers, Macquarie will no longer be a member of NZBA, as we focus on updating and delivering our plans and reporting in line with regulatory requirements”.
It is difficult then to understand whether corporations are moving towards climate disclosures or further away from them.
Some say that the departure of US banks is a direct response to Trump’s return to the Oval Office though Plakhotniuk maintains that this is a positive sign: “I think many financial institutions, large financial institutions, have gotten to the point where they kind of understand climate, and they are starting to actually build internal decision-making frameworks.” As Citi remains part of the Glasgow Financial Alliance for Net Zero (GFANZ), the NZBA’s partner organisation, perhaps then banks are seeking out their own solutions and frameworks for ESG matters, rather than being reliant on external groups.
One thing is for certain, that for Plakhotniuk “the next frontier will be nature”. And it will be up to the SEC, and the financial institutions under its domain, to actively do their part in mitigating the climate crisis.
Nor is this the government’s first or solitary attack on climate-related disclosures and information. Although the President’s return to the Oval Office has totalled a mere month, official environmental datasets are being deleted at an alarming rate. The most glaring omission, the National Security Archive notes, has been the removal of the White House pages on the Council of Environmental Quality (CEQ) and the Office of Science and Technology Policy (OSTP), in addition to the other 2,000 datasets that have since disappeared from the government’s website. As banks and asset managers increasingly desert climate coalitions, things are shaping up to be an increasingly sombre state of affairs.
But while the US withdraws from regulation on ESG issues, the EU has instead been ramping-up sustainability and climate disclosure directives. So are investors and financial institutions giving up on ESG, or are they taking matters into their own hands?
Uyeda’s stance
“I am taking action,” says Mark T. Uyeda, acting chairman of the SEC, “on the Enhancement and Standardisation of Climate-Related Disclosures for Investors rule that was adopted by the Commission on 6 March 2024.”
This rule, which requires public companies to disclose information regarding climate-related risks that have, or will be likely to, materially impact a firm’s financial condition and outlook, is one he claims is “deeply flawed” and could “inflict significant harm on the capital markets and the economy”.
Although this was the SEC’s chance to defend the rule against the several lawsuits that had been filed shortly after its implementation, Uyeda has instead requested a pause on the case in the Eighth Circuit Court of Appeals, where it is unclear whether he will defend the rule at all or simply let it be dissolved.
Clearly he has done little (to nothing) to hide the fact he opposed the implementation of the rule from the get-go. In his statement, he has made it known that, “I voted against the rule’s adoption” and “continue to question the statutory authority of the Commission to adopt the rule, the need for the rule, and the evaluation of costs and benefits”.
He also is not the only one who has made his distaste heard. During the proposal hearing in 2024, Hester M. Peirce, commissioner at the SEC, had a few choice words to say about the rule herself.
The rule’s fundamental flaw, she claims, is “its insistence that climate issues deserve special treatment and disproportionate space in Commission disclosures and managers’ and directors’ brain space”. She believes that requiring public disclosures of in-depth climate information would not only reduce a firm’s ability to respond to risks, including climate risks, but would further deter financial institutions from engaging in improving their business practices.
Peirce makes her reservations clear: “The resulting flood of climate-related disclosures will overwhelm investors, not inform them.”
A conscientious investor
Although Peirce’s use of flood is apt considering the widespread implications of climate inaction, the underlying message is apparent: that climate-related disclosures for firms should not be under federal law. However, are investors and financial institutions really feeling the effects of this ‘flood’ of information from climate disclosures, as she claims, or are they still calling for more transparency from firms regarding their sustainability obligations?
Anna-Marie Slot, founder of Transition Value Partners, believes the latter is true. Speaking at the Sustainable Finance Live conference earlier this year, she notes that regulation surrounding sustainability and ESG has seen a “538 per cent increase” since 2017, where the EU in particular “has been probably the most prolific in terms of passing laws around the space”.
Tonia Plakhotniuk, head of sustainable finance policy and regulatory advisory, climate and ESG capital markets at NatWest, elaborates, “the European sustainability reporting standards have been a massive game changer for the market”.
Talking about the Corporate Sustainability Reporting Directive (CSRD) in particular, she continues, “if you’re a corporate or a financial institution with significant presence in the EU, or if you’re listed in the EU, you would have to report under the European Civil Report standards,” where “corporate institutions will have to reflect the potential implications from nature-related risks on their financial performance, as well as the potential negative impacts from the operations of the bank on nature”. In other words, this is the very type of policy that the SEC currently seeks to dismantle.
“But in addition to regulation,” Plakhotniuk muses, “I should say investors are definitely in the driving seat right now”. Her conversations with investors have seen sustainability and climate-related issues at the forefront of discussions, as investors seek to understand the tone from the top: “So what are banks and corporates doing? What is the involvement of the board?”
These sentiments are echoed by Carolina Minio Paluello, CEO of Arabesque AI. For Paluello, the next generation of investors not only desire choice but want their actions to matter. Calling them “the conscious consumer,” Pauello explains how young investors have changed the ways they actively add to their portfolios compared to those of generations before them. She says: “You can see that they are starting to want to buy a different product; it has to be coming from companies that are actually doing the right thing for society, but also for the planet.”
Where this aligns with the current actions of financial institutions is another matter. Macquarie’s departure from the Net Zero Banking Alliance (NZBA) marks another major bank (and the first Australian one) to have exited the group within a two-month period. This is following J.P. Morgan’s exit, along with Morgan Stanley, Bank of America, Citigroup, Wells Fargo, and Goldman Sachs. Although Macquarie credits the NZBA to have helped establish their initial decarbonisation plans, the bank says, “with those building blocks now in place, like many peers, Macquarie will no longer be a member of NZBA, as we focus on updating and delivering our plans and reporting in line with regulatory requirements”.
It is difficult then to understand whether corporations are moving towards climate disclosures or further away from them.
Some say that the departure of US banks is a direct response to Trump’s return to the Oval Office though Plakhotniuk maintains that this is a positive sign: “I think many financial institutions, large financial institutions, have gotten to the point where they kind of understand climate, and they are starting to actually build internal decision-making frameworks.” As Citi remains part of the Glasgow Financial Alliance for Net Zero (GFANZ), the NZBA’s partner organisation, perhaps then banks are seeking out their own solutions and frameworks for ESG matters, rather than being reliant on external groups.
One thing is for certain, that for Plakhotniuk “the next frontier will be nature”. And it will be up to the SEC, and the financial institutions under its domain, to actively do their part in mitigating the climate crisis.
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