What are the ESG trends to watch in 2024? On both the state and federal levels, ESG is a hot legislative issue. Read our analysis today!
The last few years have taught everyone from business owners to climate advocates to regulators to care about ESG. Increasingly, those following ESG policy in the U.S. have stopped watching what Europe is doing and begun assessing the impacts of policies and proposals at home. The landscape of ESG policy in the U.S. is complex and ever-evolving. It can be challenging to follow across fifty state legislatures, each different in their partisanship and ideology.
Despite all the action on ESG, 2023 left many questions about the future of ESG policy in the United States. To get a better understanding of what might be up next for ESG policymaking, we reviewed what happened in 2023. In this blog, we identify trends that have begun to emerge so far in 2024.
What is ESG?
ESG criteria are a set of standards that have application in two primary contexts. Firstly, ESG investing involves the consideration of ethical and societal impacts while making investment decisiosn. This approach is aimed at encouraging more sustainable business models. ESG investing has gained significant traction over decades. In particular, but surged in popularity during the 2000s as a response to heightened consumer demand for corporate responsibility.
ESG can also refer to government-imposed sustainability and responsibility reporting standards. In this context, regulatory bodies mandate that corporations adhere to reporting requirements on their environmental, social, and governance practices. In rarer cases, ESG reporting standards require corporations to meet predefined benchmarks. Regardless, assessment criteria may encompass factors such as carbon emissions, supply chain ethics, and risk management compliance.
Europe has emerged as a frontrunner in ESG regulation. The European Corporate Sustainability Reporting Directive (CSRD) is considered by many to be a model for ESG regulation. Conversely, the U.S. has seen a burgeoning trend of anti-ESG regulation. In 2023, anti-ESG regulation was released in thirty-seven states. Absent federal intervention, the landscape of ESG law in the U.S. appears poised to become increasingly complex. This will certainly pose challenges and legal risks for companies seeking to navigate regulatory frameworks.
What Happened With ESG Trends in 2023?
Before 2023, regulatory oversight on ESG investing in the U.S. was minimal. Last year, we saw a notable increase in legislative activity on ESG investing. Evident at both the state and federal levels, this uptick was influenced by many factors. Recent initiatives from the Biden administration focus on ESG. On the other hand, the Republican party has positioned ESG as part of a broader agenda in the “culture wars.”
In 2023, more than two-thirds of U.S. state legislatures deliberated anti-ESG legislation. As a result, fourteen states enacted laws restricting the incorporation of ESG factors in public investments and procurements. At the same time, pro-ESG legislation struggled to gain traction outside of California. In the fall of 2023, Governor Newsom signed two bills requiring large businesses to report their greenhouse gas emissions and climate-related financial risk.
There were also plenty of developments in ESG policy outside of the U.S. in 2023. The European Union made progress on finalizing and implementing the CSRD. The CSRD is an expanded and revised version of the existing EU sustainability reporting criteria – the Non-Financial Reporting Directive (NFRD). Beginning with the largest public companies, CSRD requirements will begin to take effect this year.
The EU also advanced the Corporate Sustainability Due Diligence Directive (CS3D) which will be enacted as early as 2024. The CS3D goes further than the NFRD and CSRD in holding companies accountable. It requires that companies take an active approach in preventing and mitigating human rights and environmental harms resulting from their business practices. CS3D requirements will not take effect until at least 2027. Yet, its development and passage represent a new step in ESG policymaking.
Finally, the African Union began studying ESG in 2023. Africa-based ESG policies will likely begin to develop across the latter part of this decade.
Key ESG Trends in 2024
Many of the ESG policies developed in 2023 will go into effect, at least partially, in 2024. Further, many of the proposals that didn’t receive passage last year will be reintroduced and reconsidered. Below we broke down a few ways in which we expect ESG policy to show up in 2024.
“Anti-ESG” States Double Down on Successes in 2023
Across the country in 2023, we saw two types of anti-ESG policies have significant success. The first includes proposals to limit the factors that public pension fund managers may consider in their investment decisions. New Hampshire’s HB 457, which became law in July, is an example of such an effort. The second area includes proposals to prohibit state government agencies from entering into contracts with organizations that use their own ESG criteria to determine the businesses they work with. Alabama enacted a law of this kind, SB 261, in June.
Both policy areas focus on public money and state decision-making relative to ESG. Some anti-ESG proposals have waded into the private sector, like Texas’s SB 833, which regulates insurance providers. However, the majority of successful bills were aimed at ESG’s role in the public sector.
We at Plural expect this trend to continue in 2024. States that have yet to pass anti-ESG legislation but which have the partisan makeup to do so may find success. Additionally, states that have already passed this type of legislation may double down in 2024. Already, Alabama’s HB 61 would, if enacted, expand last year’s ESG ban to more public contract processes.
ESG Moves From Policymaking to Practice
As mentioned above, we have seen a flurry of development in ESG policy across the world. As we move forward, more and more of these policies will go from the realm of the political to the practical. This year represents the first in which some companies will need to follow the EU’s CSRD protocols. Additionally, the 2023 release of voluntary standards by the International Sustainability Standards Board (ISSB) may encourage more companies to begin to report on sustainability.
As these policies take effect, ESG consideration and reporting will continue to become a fact of life for large corporations. This new normal does not minimize the importance or the difficulty of complying with these complex regulations. 2024 will be our best look at how companies handle these new requirements.
More policy in effect means, of course, more data for the public to ingest. After all, ESG reporting is meant to encourage companies towards better, more transparent business practices. Good reporting and public education will be necessary for this positive feedback cycle to work as intended.
The SEC is the Primary ESG Policymaker in the U.S.
Significant Congressional action on ESG is unlikely in 2024, especially as we near Election Day. Instead, those monitoring federal ESG policy will watch the SEC as it moves towards finalizing sustainability reporting rules. The SEC first proposed a rule requiring expansive climate reporting by publicly listed companies in 2022. The proposal has been met with significant pushback from the large corporations it seeks to regulate. If adopted, the proposal would represent a significant shift in ESG policy in the United States.
The SEC has delayed the release of its final rule on this proposal several times. This is due, at least in part, to the opposition it has received. Yet, all signs point to a final decision being made by the SEC in 2024. Any new policy will take years to go into effect. They will likely be challenged in court before doing so. Still, the SEC’s forthcoming decision on ESG is perhaps the most significant moment in U.S. ESG policy seen thus far.
ESG and the 2024 Elections
Policy topics as wonky as ESG rarely become a headline issue in U.S. elections. It’s unlikely that candidates’ positions on ESG will be the subject of commercials or debates. Yet, there are subtle ways in which the debate over ESG will play out in election discourse.
Conservatives have sought to tie ESG regulations to a broader agenda they claim is hurting the economy for social gains. For example, former Presidential candidate and current Florida Governor Ron DeSantis included on his campaign website that he would not “tolerate woke corporations using ESG as an end-run around our constitutional system to impose heavy-handed, left-wing edicts through concentrated private power.” It’s likely that Republicans will continue to criticize ESG proposals alongside their recent opposition to DEI policies at colleges and universities.
Across the aisle, Democrats seek to balance climate action with corporate partnerships on the issue. As such, Democrats will highlight President Biden’s modest action on ESG as evidence of a greater commitment to climate action. It’s unlikely that Democrats, at least on the federal level, will propose significant advances in ESG policy to appease corporate powers.
Using Plural to Monitor ESG Trends
Plural is the policy tracking and stakeholder collaboration tool of choice for policy teams seeking to monitor ESG trends across the United States, as well as in Nigeria and South Africa. Interested in getting started? Create a free account or book a demo today!
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