In a dramatic change from the previous administration, we expect the administration of President Joseph Biden to implement a broad range of policy changes meant to mitigate climate risk and bring the US back into the global sustainability conversation. We will be monitoring several themes that we believe could arise under the Biden presidency:
- Rising Calls for ESG Disclosure
- Stricter Climate Regulations
- Changing Operational Backdrops in Various Industries
- Investors Increasingly Pricing ESG Criteria Into Decision-Making
- US Department of Labor (DOL) ESG Rule
RISING CALLS FOR ESG DISCLOSURE
In the ESG space, some investors distinguish between broad, high-level “principles-based” disclosures, which were championed by the previous administration, and “rules-based” disclosures, which are pinpointed metrics such as water usage or carbon emissions. The Biden administration could signal a shift to more rules-based disclosures, especially in climate risk, increasing the need for companies to track ESG metrics.
We also note that Biden enters office amid a greater focus on global standardization of ESG disclosure, exemplified by greater collaboration amongst standard-setting institutions. In November, the US Sustainability Accounting Standards Board and the Integrated Reporting Council announced their merger, and five of the most respected sustainability frameworks and standard-setting institutions recently agreed to band together on comprehensive corporate reporting. In September, Trustees of the IFRS Foundation published a paper assessing the option of creating a Sustainability Standards Board that would set international standards and run alongside the International Accounting Standards Board.
Points listed later in the piece — greater regulatory attention and further acceptance of the link between ESG performance and returns — could also generate greater demand for ESG assets and enhanced disclosure.
STRICTER CLIMATE REGULATIONS
Biden has pledged $2 trillion to help the US meet sustainable targets and improve infrastructure to be more environmentally sound. He also plans to expand government research and create a cross-agency Advanced Research Projects Agency on Climate (ARPA-C), which would invest in research on decarbonization, hydrogen technologies and other environmental innovations.
Biden has assembled a climate team that includes former Secretary of State John Kerry as special envoy on the climate crisis, and for the first time, the person in this role will also sit on the US National Security Council. To lead the Environmental Protection Agency, Biden has tapped Michael Regan, who was the top environmental regulator for North Carolina. Biden has also announced plans to hold a climate summit of the world’s major economies within his first 100 days of office.
Importantly, in November, Biden committed to rejoining the Paris Accord. Under the agreement, the US joins nearly 200 countries in the aim to limit global warming to below 2ºC, with further aspiration of a 1.5ºC limit. Biden has also proposed US carbon neutrality by 2050. With this target, the US would be adding to commitments made last year by the EU, Japan and South Korea to be net zero by 2050, with China aiming for 2060. China and the US could make a meaningful dent in global emissions, given that they are the first- and second-largest emitters in the world, respectively.
Partly due to new goals across the world, the projection for emissions in year 2100 has declined by 0.7ºC over the last five years, falling to 2.6ºC at the end of 2020. The Biden commitment alone accounts for a 0.1ºC drop in expected global emissions. In the US, the nationally-determined contributions set by US policymakers leading up to 2050 will help determine whether the US can meet its emissions objectives. Helping move towards this target area, a number of states have already committed to carbon neutrality (Figure 1).