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Squeeze Play: Climate Risk vs. Political Pressure Post
Tim Mohin
21 Feb
The sudden weaponization of climate action is butting up against the realities of climate-related financial risks, and investors are stuck in the middle.
Institutional investors cancel meetings as SEC issues new guidance to restrict ESG shareholder votes.
Support for ESG resolutions hits an all-time low.
Funding cuts and layoffs will increase climate risks.
Colorado has become the fifth state to introduce climate reporting legislation.
DOJ prosecutor resigns after a weeklong controversy involving “gold bars” and the fate of $20 billion in federal climate funding.
Trump tries to block New York City’s congestion charge - courts to decide.
Spain and Germany’s sustainable finance advisory board voiced support for the CSRD and CSDDD ahead of the omnibus, which is scheduled for next week.
The unstoppable force of accelerating climate risk is colliding with US backlash on sustainability. Financial institutions and companies are stuck in the middle.
Companies are forced to disclose more about their sustainability performance and are subject to withering scrutiny for every mention of sustainability. Financial institutions have a fiduciary responsibility to consider risks that increasingly stem from climate change, but they are being threatened with legal action for ESG investment strategies.
Under threats of legal action from Republican state Attorneys General, asset managers have left the Glasgow Financial Alliance for Net Zero (GFANZ). Now, the Attorneys General, emboldened by the Trump administration, are threatening more legal action if these firms continue to consider climate risks in their investment decisions. And, the recent decision against American Airlines for ESG investing in its pension fund sent another shock wave through the financial sector.
But, as BlackRock CEO Larry Fink said four years ago, “Climate risk is investment risk.” Asset managers cannot ignore the material risks and opportunities associated with climate change even if it is called something else (BlackRock now uses the term transition investing, and Fink himself said this week, “the pendulum swung too far left.”)
The group listed a series of climate expectations their asset managers must meet or risk being downgraded or dumped. Leanne Clements of the People’s Partnership said, “Ultimately, the financial material arguments for climate change rise above short-term political challenges.”
As the asset owners' backlash builds momentum, JP Morgan released Navigating The New Climate Era, which guides businesses and investors in assessing and mitigating climate risks.
Meanwhile, the SEC issued guidance to make it harder for activists to demand ESG shareholder votes. The move is a reversal of Biden-era policy and is aimed at throttling activist groups' ability to file proxy resolutions on topics such as climate and social issues.
The sudden change in policy led to large institutional investors canceling meetings with shareholders and reducing their support for ESG resolutions to an all-time low in proxy voting.
“This guidance exploded like a grenade in the middle of pending proxy fights last week,” said Kai Liekefett, a partner at Sidley representing companies in activist fights.
According to a report released this week by ShareAction (a London-based responsible investment charity), only four—or 1.4%— of 279 shareholder resolutions related to climate, human rights, and diversity filed in 2024 passed. This is a massive drop compared with 2021 when more than 20% of similar resolutions passed.
While US backtracking has left EU and UK investors tiptoeing around climate and social issues, they have remained more steadfast than their US counterparts. A group of 48 EU institutional investors has asked BP for a shareholder vote on the oil giant’s plans to roll back its climate commitments. This puts the European investors on a collision course with a US-based hedge fund that owns 5% of the shares - about double the holdings of the group of 48 asset managers.
Cuts and Lay-Offs Worsen Climate Risks
Trump is targeting government agencies related to climate research and policy, like the National Oceanic and Atmospheric Administration (NOAA) and the US Agency for International Development (USAID) - reducing these agencies’ ability to assess, warn, and mitigate climate risks both at home and abroad. Cuts to the Forestry Service, in particular, could exacerbate wildfire impacts. Also, the Administration will cut 84% from the office that oversees America’s recovery from the largest disasters, raising questions about how the United States will rebuild from hurricanes, wildfires, and other calamities made worse by climate change.
More State-Level Climate Reporting Rules
After last week’s post on the states stepping up on U.S. climate reporting, an eagle-eyed reader saw that we missed Colorado’s new climate reporting rule (HB 25-1119). Like California, New York, Washington, Illinois, and Minnesota, Colorado's legislation will require greenhouse gas emissions reporting with some slight nuances in how it phases in Scope 3 reporting.
Colorado’s climate reporting policy will impact any company doing business in the state with more than $1 billion in revenue in the year preceding the reporting year, requiring them to report Scope 1, 2, and 3 emissions from 2028 onwards. It will be phased in as follows:
2028: Companies must report third-party verified Scope 1 and 2 emissions annually (by Jan 1).
2029: Companies must report Scope 3 emissions for categories: Purchased goods and services, capital goods, and use of sold products.
2030: Additional Scope 3 categories required: fuel and energy activities (not in Scope 1 or 2), waste generated in operations, processing of sold products, and end-of-life treatment of sold products.
2031: Full Scope 3 reporting includes all remaining categories: upstream transportation and distribution, business travel, employee commuting, upstream leased assets, downstream transportation and distribution, downstream leased assets, and franchises.
The policy is currently being debated in Colorado's Energy and Environment Department. At this time, Colorado has no climate risk bill.
$20 Billion EPA ‘Controversy’
$20 billion of funds legally committed under the Inflation Reduction Act was embroiled in controversy this week, as the new Administrator of the Environmental Protection Agency, Lee Zeldin, claimed the funds, which he referred to as ‘gold bars,’ were illegally resting in a private bank.
After the issue was escalated to the Department of Justice, a lead prosecutor, Denise Cheung, resigned in protest after refusing to open a criminal case against an unnamed government vendor.
The bank was holding the funds (a typical practice) for up to 200 clean energy investments, which were to be doled out by eight non-profit grantees. Now, it is unclear whether those funds are frozen and if they will be sent to their intended recipients.
NY Congestion Charge Fight
In yet another environmental fight, the New York traffic congestion charge will now be decided in the courts. The Trump Administration terminated approval for the charge on Wednesday in a letter to New York Gov. Kathy Hochul. Transportation Secretary Sean Duffy said that the federal government has jurisdiction over highways leading to Manhattan and that the additional tolls posed an unfair burden for motorists outside the city.
Immediately after the termination was announced, New York’s Metropolitan Transportation Authority (MTA), which manages the program, filed a challenge in federal court. MTA’s CEO Janno Lieber said, “Today, the MTA filed papers in federal court to ensure that the highly successful program — which has already dramatically reduced congestion, bringing reduced traffic and faster travel times, while increasing speeds for buses and emergency vehicles — will continue.”
In another effort to limit New York’s climate leadership. An attempt was made to block New York’s climate super fund by 22 Attorneys General from Republican states who filed a lawsuit in federal court claiming the fund would be unconstitutional and “could be devastating to traditional energy producers.”
EU Split Over Future of Green Deal
With next week’s deadline for the EU’s omnibus looming (it will likely be delayed), EU member states are still split on how much to weaken the Corporate Sustainability Reporting Directive (CSRD), the Corporate Sustainability Due Diligence Directive (CSDDD), and EU Taxonomy. All member states agree with the objective of reducing the reporting burden, but they are split on the actual changes. Germany and France would like delays, while other major nations, such as Spain and Italy, want the timeline to remain.
Spain has been one of the biggest voices in support of the rules. Also, Germany’s sustainable finance advisory board published a report this week supporting the CSRD in opposition to the German government’s position. While the report called for some burden reductions, it advised keeping the CSRD “double materiality” assessment and leaving the CSDDD largely intact.
The views expressed on this website/weblog are mine alone and do not necessarily reflect the views of my employer.
Other Notable News:
Global Weirding
Net Zero
Climate Tech
Energy Transition
Biodiversity
EU Rules
The EU released tough new rules for textile waste to combat fast fashion. The provisional agreement for Extended Producer Responsibility rules will force producers to cover the costs of collecting, sorting, and recycling textiles. In addition, the rules require legally binding targets for cutting food waste.
Climate in the Courts
Some environmentalists are filing lawsuits of their own. In what is likely to be the first of many court actions from environmental groups, they have attempted to block oil and gas exploration and drilling in Alaska’s waters.
Notable Podcasts:
In this week’s episode of the Outrage and Optimism podcast, hosts Christiana Figueres, Paul Dickinson, and Tim Rivett-Carnac examine the future of climate action under the Trump administration. They discuss the failure of multilateralism and how mass engagement can pull levers in the business and finance worlds and move action into the courtroom.
In this week’s edition of Bloomberg’s Zero: The Climate Race podcast, host Akshat Rathi talks to Achim Steiner, head of the UN Development Program, about how we can afford green growth. Steiner argues that there is more than enough money—it's just in the wrong places.
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