The Future of Corporate Sustainability and Climate Action in the Anti-“Woke” Era
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Among several significant factors attributed to Donald Trump’s victory in the recent U.S. presidential election was the apparent effectiveness of sweeping attacks by his campaign and political allies on social justice and environmental movements such as DEI (diversity, equity, and inclusion) and ESG (environmental, social and governance) corporate initiatives and investing. In particular, during his campaign Trump, under the rallying cry of “drill, baby, drill,” criticized climate action and science and promised to end U.S. government spending on transitions to renewable energy.
In recent years, a comprehensive corporate sustainability movement was supercharged by landmark events such as the 2015 Paris Agreement on climate change, the George Floyd homicide (which gave rise to the term “woke”), the “me-too” sexual misconduct scandals, and the Covid pandemic, which demonstrated that sustainability and finance are closely related because sustainability issues ultimately become financial problems or opportunities for a company. As widely embraced by the corporate community, ESG programs cover a vast array of environmental and social issues relevant to business, including, among others, climate change, diversity, economic inequality, human rights, education, technology, and health care.
Now, the anti-woke political backlash against the sustainability initiatives triggered by these events has brought us to a milestone moment where the pendulum has swung the other way, giving rise to the core question of whether corporate sustainability imperatives will retreat or falter or continue to grow worldwide, and whether climate action will be impaired as a collateral consequence. Within a week of his inauguration, President Trump took various executive actions reversing Biden’s climate agenda and actions and seeking to purge DEI and ESG programs and terms from federal agencies and government contracts. Because ESG has become a “dirty word in Corporate America” according to the Wall Street Journal, many companies have already abandoned the term ESG in favor of the term sustainability in their reports and other communications, and, more substantively, some companies have scaled back or dropped their DEI programs, according to Business Insider. There has been resistance that supports corporate DEI. At Costco’s January 23, 2025, annual meeting, 98% of Costco voting shares voted against a shareholder proposal that the company conduct an evaluation and publish a report on the company’s risks of maintaining its current DEI policies.
The Role of Sustainable Finance Relating to Climate Action
Regarding climate action, although there has been remarkable, albeit insufficient, progress since the Paris Agreement, there was a general feeling of despair reported at COP 29 (the 29th convening of the Conference of the Parties, the United Nation’s decision-making body for addressing climate change). On his first day in office, President Trump withdrew the United States, the second-largest emitter of greenhouse gases (China is the largest), out of the Paris Agreement, again, and most nations are failing to meet their Paris commitments. At the same time, at COP 29, there was confidence expressed by the U.S. White House climate envoy that the multi-trillion dollar energy transition underway will continue, with sustainable finance playing an important role due to attractive returns made possible by the increasingly favorable economics of alternative energy deployment.
Under the Trump administration, the $400 billion worth of tax credits and other economic incentives provided by the U.S. Inflation Reduction Act may be discontinued or repealed, but much of their planned benefits have already flowed into the domestic and global economy and the resulting investment interests with stakes in the energy transition will likely lobby and secure continued government support in one form or another, not just in the U.S. but globally. Also, COP 29 saw progress in strengthening global cooperation in adaptation and climate finance, in particular the development of rules governing the trade of carbon credits that will allow richer nations to pay for projects in developing nations that reduce emissions. The agreement could be worth up to $300 billion of funding for projects in emerging and developing economies that will prime several multiples of that in private and public sector sustainable finance.
The pendulum swings of politics will in the near term likely limit what governments can do, but in any event, it stands to reason that the massive scale of the climate change problem cannot be successfully addressed without substantial private and public investment motivated in part to protect asset values and achieve advantageous returns. Currently, the investment case for the economics of sustainable finance outside the area of climate change is not established, but over time the risks (and thus the opportunities to address) of water scarcity and loss of biodiversity, to name just two climate-adjacent issues, will likely result in an increase in the use of existing sustainable finance tools such as green bonds and enhance sustainable investment markets overall.
It can be anticipated that an ongoing relentless rise in global temperatures and increasing occurrences of extreme and catastrophic weather events attributed by scientists to climate change will propel the investment of trillions of dollars over the next few decades in green energy and a vast array of established and emerging technologies to address the climate challenge, including those relating to, among others, emissions reductions, carbon capture, and climate resilience. The all-of-the-above nature of this massive global mobilization for a transition to sustainable economies is all but sure to overwhelm transitory political headwinds with so much at stake economically and for human well-being.
The Corporate Sustainability Movement
Corporate sustainability did not begin in 2015; rather it had grown gradually over the prior three decades. In 1987 the United Nations Brundtland Commission reported on serious environmental degradation and defined sustainable development as that which “meets the needs of the present without compromising the ability of future generations to meet their own needs.” From this evolved the corporate sustainability movement, which has been defined by scholars as “an intentional strategy to create long-term value through social and environmental impact” and has gone beyond “a corporate social responsibility approach, where a firm’s societal impact was not embedded in strategy but what was either an afterthought or operated in in the periphery of an organization” (Grewal and Serafeim, Research on Corporate Sustainability, Review and Directions for Future Research (2020), at 7).
Although the term ESG burst into high prominence for public companies and financial markets during the last five years, it was initially coined in 2004 to describe the investor perspective on financially material aspects of corporate sustainability in a United Nations report issued by the United Nations Global Compact entitled “Who Cares Wins: Connecting Financial Markets to a Changing World” issued by 20 major financial institutions with combined assets then under management of more than $6.0 trillion. The report included recommendations aimed at various participants in the financial sector with an objective of integrating ESG factors into financial market research, analysis, and investment.
Once investors and asset managers embraced a view that environmental and social factors could be material to long-term value creation, corporations took notice. The number of public companies publishing corporate sustainability reports grew from fewer than 20 in the early 1990s to more than 10,000 companies by 2019 and nearly 90% of the Fortune Global 500 had set carbon emission targets in 2018, up from 30% in 2009 (Grewal and Serafeim, at 7). In the past five years, sustainability reporting has become nearly universal for all but the smallest public companies. In 2023, sustainability reports were published by 93 percent of Russell 1000 companies, including 87 percent of the smaller half of the Russell 1000 ($2 billion-$4 billion in market cap companies) and 98.6 percent of the larger half of the Russell 1000 (i.e., the S&P 500).
The demise of ESG as a one-size-fits-all comprehensive guiding framework for investment might be a positive. When every ESG factor is on the table as has become fashionable, it becomes muddled as to what sustainability factors are actually relevant to long-term value creation for each company. This has reduced the credibility of the movement overall and possibly has inhibited investment based on sustainability.
The Future of Corporate Sustainability Reporting – From Voluntary to Mandatory
To be sure, corporate sustainability reporting is not necessarily a true indicator of effective integration of value-enhancing sustainability initiatives into a company’s strategy and operations, but as sustainability reporting has grown more sophisticated and scrutiny of “greenwashing” more intense, companies are increasingly under pressure to assure that their sustainability initiatives as described in their reports are not mere window dressing but strategic and accretive to the bottom line. Accordingly, the overall trend in sustainability reporting is a good proxy of the degree to which companies are committed to sustainability and, as regulations become mandatory, a good indicator of the likelihood that further enhancement of actual corporate sustainability actions will continue to grow and mature. For example, in response to ever-increasing investor demands and the evolution of the sustainability reporting ecosystem, corporate sustainability reporting often includes detailed information on individual company carbon transition efforts (including renewable energy investments, operational efficiencies, supply chain decarbonization, among others) with reference to leading voluntary reporting standards such as the Science Based Targets initiative (SBTi).
To date, the back and forth of corporate sustainability as evidenced in corporate reporting has been mostly an unregulated exercise. Because investors have demanded they do so, corporations have increasingly provided sustainability data voluntarily with reference to numerous private sector reporting standards and frameworks, the most prominent of which have been:
The Global Reporting Initiative (GRI), was established in the 1990s and became a widely adopted reporting framework for corporate social responsibility based on a “double materiality” standard – covering both issues material to the company and the company’s impacts on outside stakeholders and the environment that didn’t necessarily affect the company’s short-term results.
The Task Force on Climate-Related Financial Disclosure (TCFD) created in 2017 by the G20’s Financial Stability Board, recommends disclosure regarding governance, strategy, risk management, and metrics and targets specific to climate-related risks.
The Sustainability Accounting Standards Board (SASB), modeled on and designed to stand side-by-side with accounting standards, was formed in 2011 with a focus on sustainability factors financially material to a company. SASB, which is now a key part of the International Sustainability Standards Board discussed below, developed standards on an industry-by-industry basis for 77 industries that identify and measure actionable sustainability factors deemed through a SASB standard-setting process as important to long-term value creation.
The GHG Protocol methodology, first established in 2001 by the World Resources Institute and the World Business Council for Sustainable Development and currently the most widely known and used international standard for calculating greenhouse gas (GHG) emissions, has been widely adopted by the corporate community to report their emissions and progress on their published emissions reduction goals. The partnership maintaining the GHG Protocol states that 92% of Fortune 500 companies use the GHG Protocol and that it “provides the accounting platform for virtually every corporate GHG reporting program in the world.” Under the GHG Protocol companies disclose their direct GHG emissions (Scope 1) and indirect GHG emissions from purchased electricity and other forms of energy (Scope 2). Some companies also report their Scope 3 emissions pursuant to the Greenhouse Gas Protocol: Corporate Value Chain (Scope 3) Accounting and Reporting Standard. Scope 3 emissions are those that are the result of activities from assets not owned or controlled by the company, but that the company indirectly impacts in its upstream or downstream value chains through its business operations. Reporting of Scope 3 emissions is far less common and regulators considering mandatory reporting of Scope 3 emissions have come to differing positions on the merits and cost-effectiveness of such reporting.
As noted, from a regulatory perspective, with limited exceptions, compliance with these initiatives and the dozens of others making up an alphabet soup of corporate social responsibility and sustainability reporting frameworks and standards, have been on a voluntary basis. That is starting to change as mandatory regulation, which has been under development by regulators for years, is now becoming effective worldwide on a large scale. Reflecting perhaps both political backlash as well as economic uncertainty over the impacts of this mandatory regulation, the implementation of mandatory reporting, as well as other regulations, has been delayed and is often controversial, but is proceeding despite opposition from various interested parties, and business entities globally are devoting substantial and sometimes material resources as they prepare to comply with these new regulations.
In an early manifestation of this trend, in 2014, the European Commission (EC) adopted a financial directive (E.C. Non-Financial Reporting Directive) that required a limited number of large companies to disclose information on the way they operate and manage social and environmental challenges. In 2022, the European Parliament substantially increased these sustainability disclosure requirements by adopting a new Corporate Sustainability Reporting Directive (CSRD) requiring disclosure by as many as 50,000 companies on sustainability matters in the annual financial statements of all large and listed EU companies and certain EU subsidiaries of non-EU companies, generally those having at least two of the following three qualities: 250 or more employees; €40 million or more in revenue; and assets of €20 million or more (European Parliament, 2022). Significantly, the CSRD requires reporting on a double materiality basis as pioneered by the GRI.
Although resistance to mandatory sustainability reporting has increased in Europe (as seen in recent elections for the EU Parliament), the EC has not backed down. On September 25, 2024, the EC initiated formal proceedings against 17 EU member states for failing to timely implement the EU’s CSRD into their national laws (“transposition”) by a July 2024 deadline, creating compliance uncertainly for entities that will be required to report under the CSRD. The EC noted that without transposition throughout the EU of the CSRD, harmonization of sustainability reporting in the EU will be impaired, hurting the ability of investors to evaluate on comparable metrics the sustainability performance of companies when making investment decisions. The 17 non-compliant member states were given two months to respond and complete their transpositions. By November 30, 2024, 18 EU countries had implemented all or part of the CSRD and another eight have legislation pending. Notwithstanding the delays in transposition, the first deadlines to meet CSRD’s reporting requirements are fast approaching. The first reporting under CSRD by EU companies and some non-EU companies is required in 2025 based on 2024 information.
Because of the outsized role of the United States economy in both global GDP and securities markets, mandatory climate-related disclosure regulation by the U.S. Securities and Exchange Commission (SEC) has been intensely debated and contested. The SEC initially solicited comment on proposed rules in 2021 and issued a proposal in 2022. Two years later, in March 2024, the SEC adopted new climate-related risk disclosure rules. These rules draw heavily on the GHG Protocol with respect to quantitative disclosure of GHG emissions (excluding a proposed requirement to require disclosure of Scope 3 emissions) and on the climate disclosure framework of the TCFD. The rules when adopted were immediately the subject of numerous lawsuits challenging the SEC’s authority to issue them and the SEC voluntarily stayed the effectiveness of such rules pending the outcome of the litigation, which has been consolidated into one federal case. Following the resignation of SEC Chairman Gary Gensler upon Trump’s inauguration, the Acting Chairman of the SEC, Mark Uyeda, on February 11, 2025, instructed the agency’s staff to ask the court not to schedule arguments in the fully briefed case until a newly reconfigured commission with a yet-to-be-confirmed Trump appointed Chairman can determine appropriate next steps. Even if the case proceeds, it appears unlikely that the new rules will survive or become effective anytime during Trump’s second term, but the ultimate outcome is uncertain since there is strong support among investors for consistent and comparable climate risk disclosures.
On an international level, securities regulators have cooperated in the rollout of the International Sustainability Standards Board (ISSB), founded in 2021 by the International Financial Reporting Standards (IRFS) Foundation, which administers the IFRS financial accounting standards used for financial reporting by the vast majority of countries (other than the United States, which uses generally accepted accounting principles (GAAP)).
The ISSB has developed a comprehensive global baseline of sustainability disclosure standards and, significantly, the ISSB sits alongside the IFRS International Accounting Standards Board with the expectation that jurisdictions that require financial reporting based on IFRS standards will eventually also require sustainability reporting under ISSB standards. The ISSB has consolidated the most internationally significant existing global sustainability disclosure frameworks and standards, including those of the SASB; the Climate Disclosure Standards Board, an international consortium that created a framework for reporting environment and social information with the rigor of financial reporting; the Value Reporting Foundation, and the Integrated Reporting Framework, the last of which aspirationally sought to put sustainability data into monetary terms in order that it can be integrated with financial reporting.
The ISSB issued its first two reporting standards – one on general sustainability (IFRS S1) and another on climate risk (IFRS S2) – in 2023. With the publication of IFRS S1 and IFRS S2, which fully incorporated the TCFD recommendations, the Financial Stability Board stated that the standards were the “culmination of the work of the TCFD” and moved to disband the TCFD, passing monitoring responsibilities to ISSB. The ISSB Standards are thus a successor framework to the TCFD. So far, six jurisdictions have made reporting under ISSB standards mandatory (with at least 25 other jurisdictions in the process of adopting them in whole or in part).
On a subnational level in the United States, legislators in the State of California chose not to wait for final SEC rules to be adopted or effective. Legislation adopted in October 2023, taking note of the then current delay in the SEC’s proposed climate disclosure rules, stated that “California has an opportunity to set mandatory and comprehensive risk disclosure requirements for public and private entities to ensure a sustainable, resilient and prosperous future for our state.” Two new laws – Bill Text - SB-253: Climate Corporate Data Accountability Act, and SB 261: Greenhouse gases: climate-related financial risk – will require by 2026 certain companies “doing business” in California to report their GHG emissions and report climate-related information along the lines of the TCFD. Taken together, these laws will mandate comprehensive reporting of climate-related information based on TCFD recommendations and the GHG Protocol, evidence of the increasing harmonization of sustainability reporting globally.
SB 253 applies to companies with more than $1 billion in total annual revenues and will require covered companies to measure and publicly report their scope 1 and scope 2 GHG emissions in conformance with the GHG Protocol and the Greenhouse Gas Protocol: Corporate Value Chain (Scope 3) Accounting and Reporting Standard. SB 253 further requires that starting in 2027, covered companies must disclose their Scope 3 GHG emissions no later than 180 days after disclosure of their Scope 1 and Scope 2 GHG emissions.
SB 261 requires companies doing business in California and with total annual revenue in excess of $500 million to file a climate-related financial risk report beginning in 2026. Covered companies must disclose climate-related financial risks and steps taken to address the risks disclosed. The climate-related financial risks must be disclosed in accordance with either the TCFD, other reports required by law in other jurisdictions that incorporate disclosure requirements consistent with the TCFD’s framework or any successor frameworks, or the reporting standards of the ISSB (which are viewed as a successor framework to the TCFD).
Conclusions
This high-level survey of the most significant regulatory developments in corporate sustainability reporting is merely illustrative as it omits numerous other regulatory developments regarding sustainability such as the EUs directive on corporate sustainability due diligence. But we can see with respect to reporting that a consensus has developed on the fundamental reporting principles and resulting standards that will best serve the objectives of sustainability as sought in the short-term by financial market participants and national leaders for economic growth and as contemplated for the long-term wellbeing of the planet and humanity by the Brundtland Commission four decades ago. That does not mean that there will not be resistance and many more hurdles in the details along the way. For example, former Harvard and current Oxford business professor Robert Eccles, founding chairman of the SASB, recently wrote about skepticism on the value of required CSRD reporting that a corporate director of a large public company had expressed to him:
“He was complaining about the burden the CSRD was placing on his company, a company which is very sophisticated in sustainability reporting. He stated that being in compliance with the CSRD involved 1,500 underlying data points and would result in another 80-100 pages being added to their annual report. Detailed data he believed no investor would pay any attention to.”
Eccles writes that it is inevitable that complaints about the cost and complexity of CSRD will increase, but that the larger issue driving the sustainability movement in Europe is not the CSRD, but the EU Green Deal, which seeks to make the EU the first climate-neutral continent by 2050. In the end, the purpose of the CSRD and all the other sustainability disclosure regulations highlighted above is to provide markets and nations with data material for decisions on allocating resources to address the most urgent sustainability challenges the world faces. Further corporate sustainability will no doubt be a principal actor in achieving solutions to these problems and in many cases critical to the ability of individual corporations to grow and thrive financially. Accordingly, increasing momentum for corporate sustainability initiatives is likely to continue for the foreseeable future because of the seriousness of climate change and other sustainability issues regardless of the political environment of the moment.
About the Author:
David A. Cifrino, a Fellow and Senior Editor of the Social Impact Review, was a 2021 Fellow and 2022 Senior Fellow in Harvard’s Advanced Leadership Initiative. David is also Senior Counsel at the law firm McDermott Will & Emery LLP where he is a co-founder of the firm’s Sustainability, Impact and ESG practice group.