Environmental, social, and governance (ESG) and environmental justice (EJ) policies have been experiencing political pushback on several fronts in the last month. On February 27, 2023, Congress’s Committee on Oversight and Accountability announced they would be conducting oversight on the EPA’s EJ spending. The Committee requested additional details on the EPA’s January 10 request for applications for $100 million in grant funding for EJ initiatives, and for additional information on the disbursement of the $60 billion of EJ initiative funding allocated under the Inflation Reduction Act (IRA).
The Congressional Committee cited concerns regarding EJ grant program oversight mechanisms, applicant metrics, and the EPA’s ability to manage its increased budget. Specifically, the congressional committee letter stated, “oversight mechanisms in these programs are lacking, and adequate metrics for applicants must be imposed to avoid funneling money into vague projects that will enable a $100 million slush fund for far-left organizations.” The committee requested the EPA submit documentation and communications related to EPA’s work and correspondences around EJ, EJ grants, the 2022 and 2023 fiscal year budgets, and the White House Environmental Justice Advisory Council.
EJ initiatives have been rolled out by a number of states. State of Washington lawmakers intend to utilize funds from the state’s carbon emissions cap-and-trade system to ultimately fund health-based decisions related to EJ concerns (H.B. 1347). A newly adopted New York state law (effective June 2023) incorporates EJ considerations into the environmental review process, which will require regulators to consider EJ criteria when evaluating whether or not environmental impact statements (EIS) are needed. Further, as part of NYSDEC’s permit review process, applicants must produce an “existing burden report” for projects that affect disadvantaged communities. As noted last year, the growing focus on EJ will have real-world impacts on facility management, due diligence in mergers and acquisitions, and remediation and enforcement activities. The focus, from our perspective, has only continued to grow.
The congressional committee oversight of EPA’s EJ initiatives is not the only recent push by lawmakers targeting EJ and ESG initiatives. On March 1, 2023, the Senate voted to overturn a Department of Labor rule which allowed retirement fund managers to consider ESG when making decisions on where to invest. However, on March 21, 2023, President Biden used his first veto to continue to allow fund managers to consider ESG in investment decisions. In his public statement, Biden argued that the bill “would prevent retirement plan fiduciaries from taking into account factors, such as the physical risks of climate change and poor corporate governance, which could affect investment returns.” On the other hand, proponents of the bill argued that the Department of Labor’s rule would lead to fiduciaries pursuing a political agenda over financial returns. This debate has been going on for some time; in fact, in 2015, the Task Force for Climate-Related Financial Disclosures (TCFD) was established by the G20 Finance Ministers to protect investors, lenders, and insurance underwriters from undisclosed climate-related risks. The TCFD issued a set of recommendations to ensure full disclosure of financial risks and opportunities related to climate change to protect investors. Assessments often include scenario analyses to help visualize risks and opportunities.
While the path to carbon neutrality still has significant uncertainty, more organizations are embracing operational efficiency improvements and strategic opportunities presented by climate change. The TCFD recommendations form the basis for the March 2022 Securities and Exchange Commission (SEC) proposed rule for The Enhancement and Standardization of Climate-Related Disclosures for Investors, with a final rule expected in 2023.
The push against ESG is not limited to the federal government. On March 16, 2023, nineteen states agreed to form an alliance to limit state and local agencies ability to consider ESG in investments. While this alliance is mostly symbolic, it should not be overlooked. Florida is at the forefront of the ESG debate and currently has a bill in the state legislature that would prohibit the use of ESG in any state and local investment decisions and bonds. Under the proposed Florida Bill (HB 3), no government entity would be allowed to request ESG information from suppliers or contractors. The multi-state alliance would likely follow Florida’s lead and pass bills that mimic Florida legislation. Florida has already leveraged the state pension fund and divested any funds that were in ESG investments.
The recent controversy around ESG warrants a closer evaluation with a balanced perspective. EHS Support is comprised of scientists, engineers, and planners, and we focus on science-based solutions for our clients. We help our clients recognize the risks and opportunities presented by resource depletion and environmental impact through a diversity of perspectives.