By Moselaunch 
With President-elect Donald Trump poised to re-enter office in January, significant shifts are anticipated in environmental, social, and governance (ESG) regulations in the United States. Many experts expect that his administration will aim to dismantle several ESG-related regulations established during President Biden’s term, affecting rules enforced by both the Securities and Exchange Commission (SEC) and the Labor Department.
Impact on Corporate Disclosures and Pension Regulations
Analysts, including Rob Du Boff from Bloomberg Intelligence, predict that Trump’s administration will focus on blocking or revising rules on corporate and fund disclosures initiated by the SEC. These rules, aimed at increasing transparency around climate and ESG-related issues, have faced opposition from corporate lobbying groups and Republican leaders, who argue that such requirements impose excessive burdens on companies.
The Labor Department is also likely to see changes. Under Biden, the department implemented fiduciary guidance that allows pension funds to consider ESG factors in investment decisions. However, Trump’s previous term saw efforts to prevent pension funds from using ESG criteria, aiming to prioritize financial returns without ESG influences. With his return to office, Trump is expected to restore such limitations on pension funds, reverting to a more traditional approach that minimizes ESG considerations.
Restructuring Shareholder Proposals
Under the Biden administration, shareholder proposals with ESG focuses have become increasingly prevalent. SEC guidelines had relaxed the standards for such proposals, leading to a surge in the number of ESG-related resolutions during proxy seasons. This year, proposals rose by nearly 47% from 2021 levels, a trend largely attributed to these relaxed guidelines.
However, Trump’s administration is expected to impose stricter limitations on the types of shareholder proposals that qualify for voting. This could significantly reduce the number of ESG-related initiatives brought forth by shareholders and limit investors’ ability to advocate for corporate accountability on climate and social issues. By implementing more restrictive guidance, Trump’s SEC leadership would effectively narrow the scope of acceptable shareholder proposals.
Challenges for Climate-Related Disclosure Rules
Climate disclosure rules under the SEC have already been a point of contention. While SEC Chair Gary Gensler sought to introduce stronger climate-reporting requirements, these plans faced backlash from corporate entities and Republican officials, leading to a softened version of the rules by early 2024. Despite these adjustments, the climate disclosure rules have yet to be fully enacted due to ongoing legal challenges.
The Trump administration is expected to either extend the delay on climate disclosure requirements indefinitely or initiate efforts to nullify them altogether. Such a move could further stall climate-related progress within corporate reporting, which had been steadily advancing under the Biden administration.
Meanwhile, California’s separate climate-disclosure law has withstood initial legal scrutiny, surviving its first court challenge on First Amendment grounds. Although this state-level mandate remains intact for now, its future may depend on broader federal actions and potential challenges under the Trump administration.
Cracking Down on ESG Fund Labels
Another focal point in ESG regulations has been the labeling of ESG funds. In recent years, the SEC introduced guidelines to address misleading ESG fund labels, aiming to ensure that funds marketed as ESG-focused meet defined standards. However, analysts foresee that Trump’s administration may avoid finalizing these guidelines, especially under the Congressional Review Act, which enables Congress to review and potentially reverse recent regulatory actions.
Despite this, Du Boff notes that Trump’s SEC may still closely monitor ESG funds to ensure compliance with existing rules, even if stringent new guidelines are not formalized. By holding ESG funds accountable without imposing additional regulations, the administration could maintain a conservative approach to oversight.
The Trump administration’s anticipated changes to ESG regulations represent a significant shift from the ESG momentum seen in recent years. By revisiting SEC rules, Labor Department guidance, shareholder proposal standards, and fund labeling practices, Trump’s policies could redefine the ESG landscape across multiple sectors. As corporations, investors, and stakeholders adapt to these shifts, the future of ESG in the U.S. remains complex and uncertain, awaiting the full scope of Trump’s policy decisions.
In the coming months, companies and investors will likely face a new regulatory environment that prioritizes traditional financial metrics over ESG considerations, with significant implications for corporate transparency and shareholder influence.
hmn