British government to introduce bill regulating ESG raters

ESG developments this week

Economy and Society is Ballotpedia’s weekly review of ESG stories that characterize the growing intersection between business and politics.

Around the world

British government to introduce bill regulating ESG raters

Chancellor Rachel Reeves announced recently that the British government will introduce a bill next year to regulate ESG ratings agencies. Reeves said the move would align Britain “with other leading economies, including the EU.”

A new UK law to regulate agencies that evaluate the environmental, social and governance performance of companies is to be brought forward next year, Rachel Reeves has announced.

The chancellor’s crackdown on the sustainable ratings industry — a largely unregulated sector that wields broad influence over trillions of pounds’ worth of investments — is part of a global drive to increase transparency of the sector.

At present there is little oversight on how organisations create ESG criteria and rate other companies against them. The ratings influence which stocks and bonds make it into investment funds that are marketed as sustainable.

In the states

Court blocks Missouri anti-ESG rules

A federal court last week threw out two 2023 Missouri rules that limited ESG in investment plans. The court argued the rules conflicted with federal law:

Investment advisors and brokers have scored an important victory against encroaching regulatory oversight—and additional paperwork—as a federal court struck down a pair of rules Missouri authorities enacted regarding the use of “nonfinancial factors” in investment decisions, such as environmental, social, and governance (ESG).

The rules, which were adopted June 1, 2023 and took effect July 30 that year, had required wealth managers to have clients sign disclosures acknowledging that they were considering ESG or other nonfinancial issues when advising them on investments.

Sifma, a Wall Street trade group, sued, arguing that state regulators in Missouri lacked the authority to write rules governing the conduct of financial professionals that are already subject to federal regulation.

Virginia attorney general issues ESG opinion

Virginia Attorney General Jason Miyares issued an advisory opinion August 16 opposing ESG and other non-financial considerations in the management of public pension funds:

Virginia’s attorney general has advised officials from the state’s retirement system against making investment decisions that prioritize environmental issues, social issues and corporate governance, according to a nonbinding legal analysis released Friday.

Jason Miyares, a Republican who serves as Virginia’s top prosecutor, said in an advisory opinion that the board of trustees for the Virginia Retirement System should instead make investments “based on securing the best financial results for VRS beneficiaries.” The retirement system’s members include state employees, public school teachers and employees of political subdivisions, such as counties, towns and cities.

“Investments must be driven by careful, calculated financial foresight, not clouded by unfounded ESG fads,” Miyares said in a statement. “This Opinion firmly reinforces the Virginia Retirement System’s responsibility and legal obligation to make objective investment decisions free from the sway of social or political agendas. Secure futures require sound economics.”

On Wall Street and in the private sector

Large American companies prepare for climate reporting

A recent study indicates more than two-thirds of large American corporations are budgeting to report emissions data. Courts are still reviewing the Securities and Exchange Commission’s climate disclosure rule, but state laws and international regulations have prompted corporate action ahead of a final decision:

Over two thirds of large companies in the U.S. have put in place dedicated budgets for sustainability reporting, and nearly all plan to increase spending on sustainability and compliance reporting, and would advance their sustainability efforts even in the absence of climate and sustainability regulations, viewing sustainability as a company value driver, according to a new survey by ESG and EHS solutions provider EcoOnline.

For the study, EcoOnline surveyed 95 C-suite executives, Vice Presidents and Directors at U.S. companies with revenues greater than $500 million annually. The survey had a particular focus on companies’ preparedness for new California laws SB 253 and SB 261, which require large companies doing business in the state to report on Scope 1, 2, and 3 greenhouse gas (GHG) emissions and on climate-related financial risks.

As climate-related disclosure regulations advance, the survey found that companies are mobilizing to address the new requirements, with 93% of respondents reporting that they have dedicated budgets in place for sustainability reporting and compliance, including 68% with a dedicated budget for sustainability reporting for spend in areas such as hiring staff, investing in technology, and building processes for collecting, reporting and analyzing GHG emissions and other sustainability metrics.

In the spotlight

Americans oppose business political stances

Americans increasingly believe businesses should stay out of politics, according to Gallup poll data released last week. Support for business political involvement has dropped 10 percentage points in two years:

As the 2024 presidential election draws closer, U.S. adults are likely to find themselves subjected to a heavy dose of political media and content. But according to a new survey from Bentley University and Gallup, businesses are one group that Americans do not want to hear from on current events: Fewer than four in 10 U.S. adults (38%) believe businesses should take public stances, a decline of 10 percentage points since 2022. …

The results show Americans of nearly all age groups, genders, races and partisan groups have become less likely to want to hear from businesses on current events over the past two years.

Groups who were previously the most receptive to hearing from businesses are now considerably less likely to say so. In 2022, three-quarters of Democrats thought businesses should take a stance on current events; yet, over the past two years, that support has decreased by 22 percentage points.