More than 150 anti-environmental, social and governance (ESG)
bills and resolutions were introduced in 37 US states in 2023,
according to a report from Simpson Thacher, but the law firm
said it is also seeing stalled efforts and significant pushback.
The report, Seven Key Trends in ESG From 2023—and What to Expect in 2024, said that most bills were rejected or failed to pass but more than 40 anti-ESG laws had been enacted in 18 states by the end of 2023. The proposed bills are in four main categories – anti-ESG investing laws; anti-boycott laws; contracting restrictions and anti-discrimination laws.
“It’s worth noting that while 14 states did adopt new anti-ESG legislation in 2023, 23 rejected or failed to advance similar laws,” added Simpson Thacher. “As new bills on the topic come up for debate in 2024, we expect discussions to be informed by more extensive data on the financial implications associated with ESG investing, as well as expert opinions as to the implementation challenges posed by some laws’ formulations.”
The law firm also highlighted that mentions of ESG on earnings calls last year dropped to their lowest level since 2020 and that the third quarter of 2023 was the fourth consecutive quarter of net outflows from sustainable funds in the US.
“In our view, the market pullback on ESG is a natural and anticipated course correction, rather than a death knell,” added Simpson Thacher. “ESG is growing up, and challenging the corporate and financial sectors to grow with it.
As regulators and lawmakers put investment strategies under the microscope, the economic drivers supporting the use of ESG criteria, and the need to demonstrate tangible evidence connecting ESG and investor returns, came into sharper focus.”
One of the trends that Simpson Thacher expects in 2024 is continued convergence of ESG frameworks and reporting. For example, the International Sustainability Standards Board is absorbing the Sustainable Accounting Standards Board standards and responsibility for monitoring progress on the state of climate-related financial disclosures using the TCFD framework.
“EU-wide regulations also aim to bring greater harmonisation to corporate sustainability disclosure and due diligence,” added the law firm. “Further consolidation or alignment between key frameworks would represent a welcome development as reporting evolves.”
©Markets Media Europe 2024
