The Trump administration may have marked their return to office with a strong stance against DEI (Diversity, Equity, and Inclusion), but U.S. businesses should seriously consider the impacts on their strategy before recalling ESG policies. Let’s break down the key changes that we expect to see under the new administration alongside influencing factors that will continue their trajectory regardless.
Key Changes Under the New Administration
The Trump administration’s stance on deregulation, corporate governance, and environmental policies is a significant departure from the prior administration’s ESG-focused agenda. While the Biden administration ushered in an era of increased climate regulations, green financial incentives, and global cooperation, the Trump administration is pulling back on all these fronts.
Hours after taking office, President Trump signed an executive order to withdraw once again from the Paris Climate Accord. He also signed executive orders to declare a national energy emergency and halt approvals and renewals of windmill projects on federal land and waters. President Trump has also indicated plans to roll back the Inflation Reduction Act and green incentives while increasing fossil fuel production.
While the SEC (Securities and Exchange Commission) initially proposed mandatory climate reporting regulations under the Biden Administration, President Trump is expected to either repeal or significantly scale back these proposed rules. During this administration, ESG regulations are unlikely to be enshrined as a federal mandate and continue to be more of a voluntary reporting initiative.
Why ESG Initiatives Are Still Advantageous
Despite the direction of the Trump Administration, businesses should stick with their ESG-oriented business plans. While the federal government may not be enforcing climate risk reporting any time soon, multiple states are enacting ESG regulations. The California Climate Package, signed into law in 2023, set the standard for state ESG regulations, requiring organizations doing any business in California to report on climate-related financial risks alongside their emissions beginning in 2026. Now, other states have begun following suit. New York, New Jersey, Illinois, and Colorado recently introduced ESG regulations requiring similar reporting for large organizations.
The United States may have left the Paris Accord, but the rest of the world is still invested in reducing global emissions. Organizations doing business outside of the U.S. need to account for local and international ESG regulations. The EU and the UK are leading the pack, with Canada, China, the UAE, India, and others following suit. With the number of regulations increasing worldwide, companies would be remiss to turn their backs on an ESG-embedded strategy.
Aside from legislative influences, organizations should continue tying ESG to their overall strategy because climate-related business risks will continue to impact organizations worldwide. With increasingly powerful climate-fueled weather events on the rise and 2024 being the warmest year on record, businesses must assess and account for their climate-related risks to adequately prepare for any potential supply chain disruptions or asset losses.
Preparing for potential challenges is only one of the advantages of incorporating ESG into an overall strategy. Businesses that align their operations with ESG initiatives are more innovative, efficient, and have better reputations among consumers and investors. Investing in ESG initiatives means improving energy and resource efficiency, fostering community relationships, and creating long-term sustainable supply chains. Overall, this bolsters the bottom line, increases efficiency, and fosters innovation for ESG industry leaders.
While the Trump administration may not provide incentives or support for ESG initiatives in the business sphere, it is still in the best interest of organizations to continue embedding ESG principles into their long-term strategy. As the world faces climate change, global and local influences continue to highlight the need for ESG-focused business practices.