ESG in the United States: A Turbulent January 2025

The year 2025 began with a dramatic shift in the Environmental, Social, and Governance (ESG) landscape in the United States. The inauguration of President Trump brought a wave of policy changes, legal battles, and corporate initiatives that signal a potential turning point for ESG in the country. This article provides a comprehensive overview of the key ESG developments that unfolded in January 2025, analyzing their implications for businesses, investors, and stakeholders.

New Regulations and Policies

President Trump's administration wasted no time in reshaping the U.S. approach to ESG. Several executive orders signed in January 2025 signal a move away from the previous administration's focus on climate action and social responsibility, with a renewed emphasis on economic growth and energy independence.

Climate Change Policies

• Withdrawal from the Paris Agreement: On January 20, 2025, President Trump signed an executive order officially withdrawing the U.S. from the Paris Agreement on climate change. This marked the second time the U.S. exited the agreement, having previously rejoined under President Biden in 2021¹. This decision came despite the Biden administration submitting the U.S. target under the Paris Agreement just a month prior, aiming to cut net carbon emissions by 61 to 66 percent below 2005 levels by 2035¹. The withdrawal has drawn criticism from environmental advocates and sub-national governments committed to climate action¹.
• Halt on Wind Power Development: Another executive order halted approvals for new onshore and offshore wind projects, suspended the Lava Ridge Wind Project, and withdrew all areas on the Outer Continental Shelf from offshore wind leasing². This action reflects the administration's focus on promoting traditional energy sources.

Energy Policies

• National Energy Emergency: An executive order declared a national energy emergency, empowering executive departments and agencies to expedite the development of domestic energy resources, including those on federal lands². This includes issuing emergency fuel waivers for gasoline and accelerating energy infrastructure projects.
• Clean Electricity Production Tax Credit: The U.S. Department of the Treasury and the Internal Revenue Service released final regulations on clean electricity production tax credit³. These regulations are expected to have significant implications for renewable energy investments and the development of clean energy technologies.

Social Policies

• Targeting DEI Initiatives: President Trump issued an executive order to combat "illegal private-sector DEI preferences, mandates, policies, programs, and activities" and terminate all DEI programs in the federal government². This includes eliminating DEI and "environmental justice" offices and positions. The executive order "Ending Illegal Discrimination and Restoring Merit-Based Opportunity" ¹ could significantly impact DEI practices in the private sector, potentially leading to legal challenges and a shift in corporate approaches to diversity and inclusion.

Other Policy Changes

• Freeze on Agency Grants and Loans: The Office of Management and Budget placed a temporary freeze on agency grants, loans, and other financial assistance programs on January 27, 2025¹. This freeze could affect funding for various ESG-related initiatives, including those focused on environmental protection, social programs, and clean energy development.

To summarize the key executive orders issued in January 2025, the following table provides a brief overview:

ESG-Related Announcements and Initiatives

January 2025 witnessed significant ESG-related announcements and initiatives from companies and organizations, including legal battles, corporate commitments, and technological advancements.

ESG Litigation

• American Airlines Case: A Texas district court judge ruled that American Airlines violated federal law by allowing an asset manager to cast proxy votes on behalf of its employees' 401(k) retirement plans based on ESG factors². The court found that American Airlines failed to adequately monitor the asset manager's proxy voting activities, which considered ESG factors, and that this constituted a breach of fiduciary duty². This ruling has significant implications for companies that delegate proxy voting authority to external managers, particularly those with close relationships to the company. It highlights the increasing scrutiny of ESG considerations in investment decisions and the potential legal risks associated with not properly monitoring ESG-related proxy voting.
• Climate Change Superfund Act: New York State signed the Climate Change Superfund Act into law, aiming to hold fossil fuel companies accountable for their contribution to climate change by charging them for historical emissions². The funds collected will be used to address climate-related infrastructure needs, energy efficiency in buildings, public health challenges, and extreme weather events². This legislation sets a precedent for holding companies financially responsible for their environmental impact and could influence similar initiatives in other states.

Shareholder Activism

• Pro- and Anti-ESG Shareholder Proposals: Experts predict an increase in both pro- and anti-ESG shareholder proposals in 2025⁴. This reflects the growing polarization around ESG issues and the increasing use of shareholder proposals to influence corporate ESG strategies. Companies will need to carefully navigate these competing pressures and develop strategies that balance the interests of diverse stakeholders.

Nature-related Disclosures

• TNFD Initiative: The Taskforce for Nature-related Financial Disclosures (TNFD) received a $500,000 grant from the Rockefeller Foundation to scale its voluntary adoption efforts⁵. TNFD is developing a framework for companies to disclose their nature-related risks and opportunities, aiming to increase transparency and accountability for environmental impacts. This initiative reflects the growing recognition of the importance of nature in business and finance.

Technology and ESG

• Technological Integration: Technology is playing an increasingly important role in advancing ESG objectives⁶. Artificial intelligence (AI) is being used to analyze vast datasets, identify inefficiencies, and predict risks. Blockchain technology is gaining traction for verifying ESG claims, such as ethical sourcing and carbon offsets. Internet of Things (IoT) devices provide real-time data on emissions, water usage, and energy consumption, enabling companies to track progress against their ESG targets. These technological advancements are enhancing data collection, analysis, and reporting, contributing to more effective ESG management.
• AI and Energy Demands: The increasing adoption of AI, particularly in data centers, is raising concerns about its energy consumption and potential impact on ESG goals⁷. While AI offers opportunities for sustainability, companies will need to address the challenges associated with its energy demands to ensure that AI adoption aligns with their ESG commitments.

Reports and Studies on ESG Trends

Several reports and studies released in January 2025 provide valuable insights into emerging ESG trends and performance in the U.S.

ESG and Profitability

• CSE Study: A study by the Center for Sustainability and Excellence (CSE) found a 92% correlation between medium-to-high ESG ratings and profitable companies in the U.S. and Canada⁸. This research underscores the growing influence of sustainability on corporate success and suggests that companies with strong ESG performance are more likely to outperform their peers. As Nikos Avlonas, President of CSE, states, "Sustainability isn't just an ethical obligation—it's a necessity that positively influences financial results and corporate values." ⁸ This highlights the increasing importance of integrating ESG considerations into core business strategies to drive both financial and societal value.

ESG Integration and Legal Risks

• Mainstreaming ESG Integration: Experts predict that ESG integration into core business strategy will become mainstream in 2025⁹. This trend is driven by factors such as CSRD reporting deadlines, growing awareness of climate risks, and stakeholder interest in sustainability.
• Increased Legal Risks: Companies are expected to face increased legal risks related to ESG in 2025⁹. This includes potential litigation related to greenwashing, such as overstating environmental claims or misrepresenting products as sustainable. Companies may also face lawsuits related to human rights violations, such as labor exploitation in supply chains or failing to address social issues in their operations. Additionally, with the increasing focus on climate change, companies could face litigation related to their contribution to climate change or their failure to adapt to climate-related risks. The emergence of "AI-washing" lawsuits, where companies are accused of overstating their use of AI for business benefits, further exemplifies the expanding scope of ESG-related litigation⁴.

ESG-Related Events and Conferences

While January 2025 did not see major ESG-related events in the U.S., several significant conferences are scheduled for later in the year. These events provide platforms for knowledge sharing, networking, and collaboration on ESG-related issues.

• Cleantech Forum North America (January 27-29, San Diego): This forum connects investors, corporations, and innovators in the cleantech space¹⁰. It provides a crucial platform for fostering innovation and investment in clean technologies, particularly relevant in light of the changing federal priorities on energy.
• AHR Expo (February 10-12, Orlando): This event covers the latest advancements in heating, ventilation, air conditioning, and refrigeration (HVACR) technology, including sustainable solutions¹⁰. With increasing focus on energy efficiency and building decarbonization, this expo offers valuable insights into the latest technologies and strategies for sustainable building practices.
• Green Schools Conference (March 3-4, Orlando): This conference focuses on creating and advocating for green schools with a whole-school sustainability approach¹⁰. It addresses the growing importance of sustainability in education and provides a platform for sharing best practices and promoting environmental awareness among students and communities.

Synthesis and Conclusion

January 2025 marked a pivotal moment for ESG in the United States. The change in federal leadership brought a shift in priorities, with a renewed focus on energy independence and economic growth, potentially diminishing the U.S.'s global leadership on climate change. While some states and companies remain committed to ESG goals, the regulatory landscape is becoming increasingly complex and uncertain, which could impact investor confidence in U.S. companies.

Despite these challenges, several trends suggest that ESG will continue to be a significant factor for businesses and investors in the U.S. The growing awareness of climate risks, stakeholder pressure, and the increasing integration of ESG into core business strategy indicate that sustainability will remain a key driver of long-term value creation.

The January 2025 developments could shape the future of ESG reporting and disclosure in the U.S. With a potential reduction in federal regulations, states may take a more prominent role in setting ESG standards, leading to a more fragmented and potentially challenging landscape for companies operating across multiple states. This could also drive the adoption of voluntary disclosure frameworks and industry standards as companies seek to demonstrate their commitment to ESG principles and meet the expectations of investors and stakeholders.

Companies operating in the U.S. will need to navigate this evolving landscape carefully, ensuring compliance with new regulations while adapting their ESG strategies to meet the expectations of investors and stakeholders. Proactive engagement with stakeholders, robust governance structures, and a commitment to transparency will be crucial for companies to successfully navigate the changing tides of ESG in the U.S.

Works cited

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