The Biden administration is not so quietly making big moves in the area of environmental, social, and governance (ESG) regulatory initiatives that should give chief compliance officers the cachet to elevate these issues closer to the top of the priority list at their organizations.
Let’s examine some evidence from the early days of the administration:
- The Securities and Exchange Commission (SEC) announced increased expectations of public companies in disclosing climate change risks. The effort is initially aimed at helping to update decade-old guidance from the agency, but public companies should be preparing for the day when such disclosures will be mandatory.
- Biden’s SEC also created a new senior policy advisor position on climate change and ESG. “Having a dedicated advisor on these issues will allow us to look broadly at how they intersect with our regulatory framework across our offices and divisions,” acting Chair Allison Herren Lee said at the time of the appointment of attorney Satyam Khanna to the job.
- New Treasury Secretary Janet Yellen told U.S. allies in a recent meeting that her department’s approach to climate change will “change dramatically” from the Trump administration. And how’s this for signaling: When asked whether companies could address climate risks on their own or whether regulation is needed, Yellen replied, “It certainly requires policy.” She is also expected to appoint Obama administration alum Sarah Bloom Raskin as the department’s climate czar.
- Back in December, Nasdaq proposed a rule that would require all listed companies to have at least two diverse directors on their boards—one female and another who self-identifies as either LGBTQ+ or an underrepresented minority—or else explain why they don’t. The SEC needs to approve the proposal, but there is little doubt it will be OK’d.
What we’re looking at, then, is a perfect storm of sorts. Biden’s policy initiatives and staffing moves clearly signal to companies regulators are going to make ESG a focus. And CCOs, empowered by these regulatory forecasts, are in perfect position to take the lead within their organizations to advocate for more progressive ESG policy-making and resource allocation to meet the demands of not only the regulators, but all stakeholders—investors, employees, and the communities they serve.
Many firms are ahead of the curve in this area—according to a recent NAVEX Global survey, 88 percent of publicly traded companies in the United States, United Kingdom, France, and Germany have ESG initiatives in place. However, just 50 percent of those polled believe their companies perform very effectively against environmental metrics, and the United States lagged behind Europe in terms of program maturity.
In other words, ESG is far from a new term for organizations, but it’s not the priority it needs to be—at least not yet.