What impact will the incoming Trump administration have on ESG and DEI issues, especially around corporate regulations and government agencies? Expect more executive orders, and much less federal rulemaking
The impact of the recent US Presidential election on environmental, social & governance (ESG) matters is expected to be wide-ranging, with a broad pullback expected in federal rulemaking, alongside the reversal of several policies. However, legislation by certain US states, such as California, will remain in force, as will international rules requiring compliance from large US-based companies.
President-Elect Donald Trump, a strong proponent of increasing fossil fuel production, will almost certainly pull the United States, once again, out of the Paris Climate Accords. His election has already cast a pall over international negotiations at COP29, the annual United Nations climate summit, in Baku, Azerbaijan. As of press time, countries at the summit were struggling to secure a climate finance deal that would support poorer countries in combating climate change.
“Overall, the outcome of the US election win is a dangerous moment for climate action because of its chilling effect on federal, global, and corporate action,” says Dr. Andrew Coburn, CEO of Risilience, a UK-based sustainability intelligence firm. “However, the world looks very different from 2016, and there are nuances that will soften the impact.”
For example, there will be less regulatory pressure for US companies to show action toward their climate goals, but for large corporations — both multinational and domestic — regulation from the European Union and the State of California will “mean they still have to engage in stringent climate disclosures,” Coburn adds.
Increased executive orders on oil, environmental protection, diversity
Many experts have said they believe one way that Trump will act quickly on environmental, social and other policy objectives is by issuing executive orders. The use of such orders is a strategy that many US presidents have used early in their term, offering them an easy way to bypass Congressional negotiations and legislation.
Peter Alpert, partner at the law firm Ropes & Gray in New York City, recently joined colleagues in a roundtable discussion about the outlook for ESG policies under a second Trump administration. “Substantively, I think that you’d see executive orders on the topic of extraction of fossil fuels — ‘drill, baby, drill’ type of executive orders,” says Alpert, adding that there may also be a directive that could impact the U.S. Environmental Protection Agency (EPA).
Trump’s nominee to lead the EPA is Lee Zeldin, a former member of Congress. Zeldin, who ran for New York State governor two years ago, is a lawyer with little climate or environmental experience. In comments made after his nomination, Zeldin said publicly that he would prioritize “unleashing economic prosperity through the EPA” and pursue “energy dominance,” a phrase used to refer to developing more oil and gas.
You can hear more about what impact the Trump Administration will have on trade and regulations in the latest Thomson Reuters Institute Insights podcast on Spotify.
Regarding diversity, equity, and inclusion (DEI), observers expect the new administration to issue executive orders quickly. Doug Brayley, of Ropes & Gray, said he expects “executive orders over the topics that the executive has the most direct control over, and that’s namely the staffing of the federal government, which, of course, employs millions and millions of Americans in civilian capacities and also [manages] federal contractor compliance.”
Brayley cited Project 2025, produced by the Heritage Foundation, an American conservative activist group, that is said to be an explicit blueprint for the new Trump administration. “We’ve seen in Project 2025 [that] there’s a plan to purge the federal bureaucracy of a number of senior civil servants,” Brayley explains. “One, I think, can reasonably expect senior DEI officials at the various agencies to be included.”
Little hope of resurrecting SEC climate rule
Trump has yet to nominate a new chair for the U.S. Securities and Exchange Commission; however, whomever he chooses will almost certainly eliminate or severely truncate the climate disclosure rules put forward by current SEC Chair Gary Gensler. Gensler has said publicly that he would step down from his role in January when Trump takes over.
The climate disclosure regulation, sharply criticized and challenged in court, is now languishing in the U.S. Court of Appeals for the Eighth Circuit after the SEC put a stay on the rules.
In an analysis of likely financial regulation under the Trump administration, consulting firm PwC stated: “The SEC’s climate risk disclosures are not likely to go into effect during the new Trump Administration, as they are already facing a difficult legal battle that a new chair could choose not to fight.”
On the state level, the California legislature formally declined to delay the sustainability reporting regulations contained in its Climate Corporate Data Accountability Act (known as SB253) in August, and the law remains in effect even while being challenged in court. The law, previously signed by California Gov. Gavin Newsom, means that both public and private companies that meet certain revenue thresholds and “do business” in California should prepare to report information on their greenhouse gas emissions as soon as 2026. Other states, such as New York and Illinois, may follow California’s lead on climate disclosure.
More action on “greenhushing”
In 2023, the SEC adopted a new rule cracking down on greenwashing and other deceptive or misleading marketing practices by US investment funds. The changes to the two-decade-old SEC Name Rule require that 80% of a fund’s portfolio matches the assets advertised by its name. The regulation targets a boom in funds that have tried to exploit investor interest in ESG investing, with names that do not accurately reflect the fund’s investments or strategies.
Should a new SEC take on more of an anti-ESG sentiment, such as that seen in some Republican-led US states, experts suggest there could be more investigations into funds that seek to downplay their ESG-related investments — what is often referred to as greenhushing — in an effort to avoid riling anti-ESG politicians or lawmakers.
This might be particularly difficult for fund managers operating in both the EU and the US, notes George Raine of Ropes & Gray. “If you’re a manager who is managing the same strategy, say, in Europe, and you’re out there saying, ‘Hey, this is an ESG strategy,’ and you fail to mention that in your US version of the same strategy, you would then potentially be violating a rule that says you must go out and say you are an ESG impact fund or an ESG-focused fund,” Raine explains.
US corporations will continue ESG efforts
Despite the gloomy prognostications at the federal level, some experts said they believe that many US companies will continue pursuing ESG policies and strategies — if for no other reason than they see it as a good, long-term business practice.
“Companies committed to sustainability will stay the course because it makes business sense,” said Tim Mohin, global sustainability leader at consulting firm BCG. “Investors will seek value by avoiding risks and betting on new, efficient green tech. Climate advocates will redouble their work, and the public will increasingly expect action from their elected representatives as climate risks mount.”
Mohin says that while US leadership of climate and sustainability action will undoubtedly reverse, “the future of the global sustainability movement will continue.”
You can find more about the impact of the recent Presidential Election here.
