The new administration & its impact on ESG disclosure

As the threat of climate change amplifies and its impact extends across nations and industries, US President-elect Joe Biden and Vice President-Elect Kamala Harris bring promise and leadership. The United States officially left the Paris Agreement on November 4^th, the day after the election, and Biden has gone on record saying the US will rejoin the Paris Agreement on his first day in office.

Broad climate impact

Whether the impact will come in waves or a trickle will largely depend on Senate control. Two Senate runoff elections in Georgia before and on January 5^th will be the deciding factor on which party controls the senate. Democrats are expected to secure both seats in question and take control of the Senate, signifying an ability to pass more progressive ESG-related legislation; if that doesn’t happen, Biden may have to rely on administrative and regulatory actions.

The Biden administration has unveiled a list of ten climate actions to be taken on Biden’s first day back in the white house:

1. Require limits on methane pollution for oil and gas operations.
2. Use the federal government procurement system to work towards 100% clean energy and zero-emissions vehicles.
3. Ensure US government buildings and facilities are more efficient and climate ready.
4. Implement the already-existing Clean Air Act and reduce greenhouse gas emissions from transportation by developing new fuel economy standards to ensure all new sales for light- and medium-duty vehicles will be electrified, and annual improvements for heavy duty vehicles.
5. Double down on liquid fuels like advanced biofuels and make agriculture a key part of the solution to the climate crisis.
6. Reduce emissions and cut consumer costs through new standards for appliance and building efficiency.
7. Require federal permit decisions to consider the effects of greenhouse gas emissions and climate change and ensure every federal infrastructure investment reduces climate pollution.
8. Require public companies to disclose climate risks and greenhouse gas emissions in their operations and supply chains.
9. Protect biodiversity, slow extinction rates, and conserve 30% of America's lands and waters by 2030.
10. Permanently protect the Arctic National Wildlife Refuge, establish national parks and monuments, ban new oil and gas permits on public lands and waters, modify royalties to account for climate costs, and create programs to enhance reforestation and develop renewable energy on federal lands and waters to double offshore wind by 2030.

While details of these specific focus areas are still largely unknown, it is certainly an encouraging sign. However, the administration’s plans are expected to meet some resistance. For example, Biden’s appointment of Tom Vilsack, who is currently chief executive of the US Dairy Export Council, drew some criticism, as dairy production contributes considerably to emissions.

On the whole, the election of Biden is a step in the direction towards serious climate action that aligns with global standards and markets, which includes Biden’s Climate Plan to achieve net-zero emissions by 2050. At the local level, the administration aims to upgrade 4 million buildings, weatherize 2 million homes, and build 1.5 million sustainable homes via means of low-cost financing, promoting retrofits, and improving supply chains.

Change in direction for ESG disclosure

It is important to note that the upcoming changes are not starting from zero, and in many cases are simply building off existing pillars or accelerating progress. In this sense, by piggybacking on increased ESG asset investment over the past several years, the Biden-Harris team should push the needle even further. Joe Keefe, president of Impax Asset Management, summed it up well, saying: “It is worth bearing in mind that the clean energy sector has managed to thrive despite four years of indifference at best and opposition at worse, from the Trump administration”.

While ignoring investor demands for public companies to disclose material action, the current administration has also sought to limit ESG fund allocation in retirement plans and limit shareholder democracy. In contrast, the Securities and Exchange Commission (SEC) expects to see a greater focus on ESG disclosure in the next four years with Biden as president.

Many of the nation’s largest companies like Amazon, Walmart, and Google have urged Biden to take meaningful climate action in response to investor pressure, as well as from customers and clients. In 2019, 181 CEOs signed a letter advocating for stakeholder primacy, indicating that the purpose of a corporation is to “benefit all stakeholders – customers, employees, suppliers, communities and shareholders.” This is a turn from shareholder primacy, a dominant economic thought that a company’s sole purpose is to benefit shareholders.

Working with the private sector

Biden has built a strong reputation of “working across the aisle”, which should aid him as he seeks to collaborate with the private sector to advance ESG-related legislation. An early indication of this is Biden’s appointment of BlackRock’s Global Head of Sustainable Investing, Brian Deese, to lead the National Economic Council, a top White House advisory position designed to help inform, design, and coordinate the economic components of the President’s policy agenda.

Deese previously served as Deputy Director under the Obama administration and played a key role in negotiating the Paris Agreement, centered around driving sustainable investment strategies to accelerate towards a low carbon economy.

Biden’s regulatory environment

The SEC’s board of commissioners is likely to swing in Biden’s favor as the current chairman, a Trump supporter, is stepping down at the end of the year. With a Biden-appointed chairman, an ESG-friendly direction appears likely. Mary Shapiro, former chair of the SEC and current Head of the Secretariat for the Task Force on Climate-related Financial Disclosures (TCFD), thinks the SEC “should and will move to mandatory disclosure” related to climate change. The Biden administration plans to move the needle from principal-based disclosure to rule-based disclosure. Companies will likely be asked to show how climate risk, corporate governance, and diversity factors are impacting bottom lines.

Ahead of the curve is NASDAQ. In December, NASDAQ announced that it will be requiring companies listed on its stock exchange to publicly disclose statistics about their board of directors. Companies who do not have at least two diverse directors, including one underrepresented minority or person who is LGBTQ+ and one self-identifying female, will be required to explain why they do not.

Under the Biden administration, the Department of Labor also shows signs of becoming more supportive of ESG investing and action on disclosures. Under Trump, the Department of Labor took explicit strides to remove references to ESG in its regulatory standard in a controversial rule related to pensions plans that are governed by the Employee Retirement Income Security Act (ERISA), which received 95% of public comments in opposition to the proposed rule. Repealing this rule is expected to be a top priority of the Biden administration.

Standardizing ESG

ESG investing has seen exponential growth in the business world in the past 4 years, and so has been the need for ESG-centric and ESG-mindful business. As the Black Lives Matter movement and public demand for racial equity came to a head this summer, pressure on ESG to mature has increased accordingly.

In an interview with Business Insider, JUST Capital CEO Martin Whittaker opined that ESG public disclosure should see a shift around standardization, a long held desire of those in the ESG space. With transparency, we could see a positive public-private sector cooperation and corporate competition fueling even stronger ESG initiatives down the road.

The Biden administration has championed creating an economic platform that works for everyone. If ESG investing over the last four years is now spurred by a more collaborative president, we could see a new public expectation or paradigm of Stakeholder Primacy featuring high ESG transparency and operations.

ESG materiality assessments

With investors inquiring more and more frequently about what your company is doing in regard to responsible investment, how you treat employees and vendors, your dedication to sustainability initiatives, and other activities that fall under the ESG umbrella, it’s important to have answers to these questions.

An ESG materiality assessment empowers you to easily report on your current state and outline future initiatives while taking into consideration your business goals and risks. Download our guide to creating and extracting the maximum strategic value from an ESG materiality assessment.

Download guide

Sambhram Patel

In his role as a Senior Solutions Architect, Sam manages portfolio-wide projects for reporting frameworks such as GRESB, CDP, and the S&P CSA for multiple clients. Additionally, he helps drive asset-level sustainability by supporting projects such as LEED, ENERGY STAR, Fitwel, and utility benchmarking.

LinkedIn