US State-level Ambition Cannot End with Trump – PRI
Policy briefing emphasises importance of providing investors with a robust sustainable finance market that is interoperable state-by-state.
State-level lawmakers can still drive sustainability action and investment in the US – irrespective of federal policy priorities – according to a new briefing by the UN-convened Principles for Responsible Investment (PRI).
The report aims to support US states wanting to evaluate, adapt and implement responsible investment practices to bolster their local sustainable finance system, rather than waiting for federal legislation to carve the path forward.
Under Donald Trump’s second presidential term, federal-level sustainability and climate policies and regulation are likely to slow or be overturned. Potential actions include a scaling-back of expenditure related to the Inflation Reduction Act.
However, the PRI is seeking to frame the case for ESG and sustainability-related policies in terms of economic benefits rather than party political differences.
“Whether there’s a Democratic mandate, a Republican mandate or a split government in Washington, this guidance has been designed to be apolitical,” Sam VanderMeulen, PRI’s Senior US Policy Analyst, told ESG Investor.
“Beyond the political theatre and campaigning and debates we see in state houses, responsible investing is just good for business.”
By adapting the PRI’s existing Policy Toolkit project, the briefing sets out baseline steps state-level officials can consider.
The PRI has called on lawmakers to adopt a state-wide approach to enable responsible investment by promoting and encouraging aligned practices at the highest levels of government. In addition, it has recommended clarifying investors’ ability to incorporate material ESG-related considerations into investment decision-making and to report on their ESG incorporation policies and performance targets.
States can also look to align their corporate sustainability disclosures with global best practices by following the International Sustainability Standards Board’s disclosure recommendations on climate and sustainability reporting the PRI said.
The report encouraged US states to better support investor stewardship practices so that asset owners feel empowered to leverage the full scope of their rights as shareholders – including casting votes and engaging with portfolio companies on material sustainability-related issues on behalf of their beneficiaries.
Policy alignment between states is also imperative to facilitate the efficient allocation of capital by investors and to ensure a sustainable market environment that attracts capital from investors seeking long-term, sustainable returns, it added.
Despite PRI’s argument that responsible investment is apolitical and good for business, some states are choosing to align with groups proposing anti-ESG policies. Over 350 pieces of anti-ESG legislation have been proposed and introduced across 39 states since 2022.
State-level policy has also assumed greater importance in light of regulatory and legal developments. Earlier this year, the US Supreme Court overturned the 40-year-old Chevron precedent, which had given federal agencies the ability to apply reasonable interpretation of ambiguous laws.
The decision to overturn the precedent hands courts more scope to challenge agencies and strike down regulations aimed at addressing ESG risk factors. This includes the US Securities and Exchange Commission’s now delayed climate risk disclosure rule.
The World Research Institute (WRI) has pointed to 11 potential climate setbacks under a Trump presidency and the introduction of Project 2025.
It has also been estimated that Trump’s presidential term could result in a further four billion tonnes of carbon emissions produced by the US by the end of the decade.
Getting competitive
Under the outgoing Biden administration, some state-level lawmakers have chosen to accelerate climate action, serving as case study examples for others across the US.
Earlier this year, California unveiled its climate disclosure rules, which will apply from 2025 and 2026.
It has been subject to litigation as lobbyists push back against the impending rules. Earlier this month, the Federal District Court for the Central District of California declined to grant summary judgement to the US Chamber of Commerce and other groups challenging the climate disclosure rules on First Amendment grounds.
As one of the largest economies in the world, California’s climate ambition will likely have a “huge positive impact”, said Gregory Hershman, PRI’s Head of US Policy.
Similar climate disclosure initiatives are also underway in the states of New York, Oregon, Illinois, and Washington.
Hershman said US states should also consider the competitive benefits of prioritising sustainable finance regulations when looking to compete on the global stage for investment.
“The American view is very markets-driven, and while the US continues to lead global capital markets, that doesn’t necessarily mean that every community or state in the country continues to be one of the most in-demand places for capital,” he said.
“A lot of states and regions are going to start thinking about how to stay competitive [with the rest of the world]. That will increasingly mean taking action on climate change – increased disclosures, measurement and mitigation of these impacts.”
Establishing responsible investment practices at the state level can help protect local and regional markets from shocks, the PRI briefing suggested, supporting long term resilience and productivity.
As well as aligning sustainability regulation with other jurisdictions, a future challenge for US states will be interoperability across the country, VanderMeulen noted.
“If you have two states that are next to each other and developing climate disclosure regulations in completely different ways, this could end up causing more harm than good,” he said.
The PRI has previously supported sustainable finance policy in specific US states, such as by developing Fiduciary Duty in the 21st Century Roadmaps for California and Ohio.
The post US State-level Ambition Cannot End with Trump – PRI appeared first on ESG Investor.