Trump’s anti-ESG influence is quickly starting to unwind
ESG debate moves swiftly forward in the SEC under Biden’s administration
A wave of ESG-related changes in the US administration under Joe Biden’s leadership is unfolding this month, marking the beginning of an unwinding of policies set out by his predecessor Donald Trump.
While the Trump presidency made many well-documented moves against ESG values, Biden has appointed a swathe of people to the Securities Exchange Commission (SEC) to move policy towards what most of the rest of the world is setting its sights on.
One key person in this space, SEC acting chair Allison Herren Lee, who picked Satyam Khanna as senior policy adviser for climate change and ESG at the regulator, said on 15 March that the regulator has started seeking the public’s feedback on climate change disclosures within the next 90 days.
“I am asking the staff to evaluate our disclosure rules with an eye toward facilitating the disclosure of consistent, comparable, and reliable information on climate change,” Lee said in the statement.
The 15 questions that interested parties should answer include one about consistent and reliable information on climate change. Another asks about the pros and cons of developing a single set of global standards applicable to all companies around the world.
“Original data from respondents, including academics, data providers, and other organizations, may assist in assessing the materiality of climate-related disclosures, and the costs and benefits of different regulatory approaches to climate disclosure,” she said.
Since Lee became the acting chair of the SEC, following Joseph Biden’s presidential inauguration on January 20, she has started multiple initiatives on ESG. These include areas such as scrutinising more closely company filings on ESG and climate change matters, while examiners are putting more emphasis on reviewing ESG practices of investment advisers. She also created an enforcement task force to ensure ESG disclosures and practices stack up properly.
The current US Supreme Court definition of ESG materiality uses “a reasonable shareholder” as the basis for considering whether it is important in deciding how to vote, which begs the question of how a taskforce will start investigating before anyone knows what the rules are going to be.
The SEC had kept up the momentum on ESG, signalling support for a global standards approach when John Coates, acting director, division of corporation finance, made a statement at the 33rd Annual Tulane Corporate Law Institute on 11 March.
He said: “Going forward, I believe SEC policy on ESG disclosures will need to be both adaptive and innovative. We can and should continue to adapt existing rules and standards to the realities of climate risk, for example, and the fact that investors increasingly are asking for ESG information to help them make informed investment and voting decisions. We will also need to be open to and supportive of innovation – in both institutions and policies on the content, format and process for developing ESG disclosures.”
Meanwhile, the Department of Labor has also laid out a direction of travel for how ESG matters will be dealt with and decided on 11 March to suspend the limiting of socially conscious investments by retirement plans further indicated that the Biden administration is favouring the ESG approach.
This new stance means the regulator will not enforce Trump-era rules requiring workplace pensions to solely consider financial factors when selecting plan investments or casting proxy votes, which had come into force shortly before Biden took office.
An indication of just how far the ESG debate has move on in the SEC under the current administration is evidenced by another part of Coates’ statement on 11 March, when he said that arguments in favour of a single global ESG reporting framework are “persuasive”.
“ESG issues are global issues. ESG problems are global problems that need global solutions for our global markets,” he said. “It would be unhelpful for multiple standards to apply to the same risks faced by the same companies that happen to raise capital or operate in multiple markets.”
This certainly feels far away from the widespread criticism of the SEC during the Trump administration for its perceived lack of work on encouraging shareholder activism and investor engagement on ESG issues.Last Updated: 19 March 2021