By Steven Cohen, Ph.D., Director of the M.S. in Sustainability Management program, School of Professional Studies
While Europe and states like California persist, as predicted, the United States federal government abandoned its defense of its own carbon reporting rules. With the election of President Trump, this was entirely expected, and as the United States defunds its research institutions, terrifies immigrants, and tariffs its economy into a ditch, sophisticated approaches to navigating the complexity of the global economy are being completely abandoned. Reporting on carbon and environmental risk is not a superfluous regulation required by an “over-reaching” federal government, but data that investors want in order to compare risk across potential investments. American companies operating in Europe and California will still need to develop sustainability reports. But now, instead of adhering to a single metric from the United States government, they will need to respond to a multiplicity of reporting standards, as America abandons any pretense of leadership. Over time, American reporting requirements might have influenced other requirements and could have eventually led to generally accepted sustainability metrics. But for the time being, the Trump administration’s anti-regulatory ideology is the mantra of the moment.
According to Yusef Khan in the Wall Street Journal on March 28:
“The Securities and Exchange Commission voted to drop its defense of rules that would push companies to disclose their carbon emissions, after numerous legal challenges to the ruling. Acting SEC Chair Mark Uyeda said in a statement Thursday that “the goal of today’s Commission action and notification to the court is to cease the Commission’s involvement in the defense of the costly and unnecessarily intrusive climate change disclosure rules.” The rules, which were finalized last year, required companies to disclose their greenhouse-gas emissions, including their direct emissions, such as burning fuel for a company’s operations. The SEC had originally asked companies to also report their supply-chain emissions but dropped those after legal challenges and complaints that doing so would be too costly. By dropping its defense of the rules, the SEC is effectively walking away from the regulations it had established, despite not actually rescinding the rules. The rules were scheduled to go into effect in 2026, though this was paused amid the legal battles.”
Politicizing environmental risk does not end that risk, but it will make it more difficult to integrate knowledge about those risks into investor and management decision making. One of the important insights we will gain from artificial intelligence will be the ability to develop better projections of risk. However, if the data on conditions that cause risk is not collected and translated into valid and reliable sustainability metrics, even AI-guided projections will end up being based on “garbage in” and will only be capable of projecting “garbage out.” The financial risks our companies and institutions need to consider are those that are caused by extreme weather events, environmental damage, liability suits from people poisoned by toxics and other pollutants, as well as the impact of global warming on agriculture and supply chains. Even if risks cannot be avoided, they can be anticipated, and impacts can be reduced. As Tim McDonnell observed in SEMAFOR:
“Climate-conscious investing may have gone quiet, but it hasn’t disappeared. Contrary to what the Republican AGs suing the SEC argue, ESG investing was never about fighting climate change, per se. It was about preparing for the financial risks posed by physical climate impacts and government policies to cut emissions. The physical risks are more obvious every day; and even though the current US administration has prioritized fossil fuels, most investors still recognize that companies with unrestrained carbon footprints are a risky long-term bet… A range of investors with a combined $50 trillion in assets under management submitted comments to the SEC about the climate rules; of these, 95% were supportive, said Steven Rothstein, managing director of the Accelerator for Sustainable Capital Markets at the advocacy group Ceres. 92% of Fortune 500 companies already do some form of climate disclosure. And there are at least 35 other jurisdictions — including California, the European Union, Japan, and South Korea — that have introduced or are developing climate disclosure rules, and that together represent more than half of global GDP, Rothstein said. So by walking away from climate disclosure, the SEC is doing no favors for most companies.”
Sustainability management requires sustainability metrics. You can’t manage something unless you are able to measure it, because without metrics you can’t tell if your decisions are improving or impairing operations. We live on a more crowded and interconnected planet. Even Donald Trump’s poorly designed and ill-advised trade war will not end global supply chains or international trade. It may impoverish America by driving capital investment and lower-cost goods away from this country. Capitalist production processes gravitate toward the highest quality at the lowest cost. Extreme specialization leads to greater productivity and higher standards of living. But an interconnected economy requires more mindful and thoughtful decision-making that is able to measure the positive and negative impacts of organizational behaviors. This is not “woke management,” but thoughtful, competent management. Investors look for indicators of this thoughtfulness and competence because they correctly assume that when they see mindful management, they are also seeing management that seeks to understand and reduce risk. The SEC’s financial rules on accounting and reporting provide indicators of financial risk and fraud. But investors also seek more granular data on organizational operations. How much new business is in the pipeline? How quickly are payments received from customers? How are market conditions changing? Does the organization have an independent board capable of influencing management? Does management have sufficient depth of needed expertise? What are the organization’s non-financial key performance indicators? The list goes on. All of these factors influence investor judgment and stock prices. As the first quarter of the 21st century ends, investors want information on the organization’s understanding and management of environmental, political, and regulatory risks.
They also need data on the organization’s use of energy. Renewable energy is already less expensive than fossil fuels. The technology of converting solar energy to electricity and storing intermittent wind and solar energy is becoming more efficient and less expensive. The sun is free and will last longer than our species, fossil fuels are finite, and their costs vary due to the impact of politics (war and tariffs) on supply. Like computers and communications, as technology advances, the cost of renewable energy comes down. We’ve seen that with our smartphones, and we are starting to see it with solar cells and batteries. Organizational life and family life are increasingly dependent on energy, and an organization that manages its carbon releases will tend to be a better-managed organization than one that does not.
The SEC’s retreat from carbon reporting is a setback, and it will delay the development of generally accepted sustainability metrics. Measures of carbon emissions, biodiversity impacts, toxic releases, community impact, and an organization’s ability to recruit talent are all needed to assess management competence and the organization’s ability to navigate a riskier and more complicated world. Investor demand for these data will continue, as will the ungoverned world of ESG reporting.
The Trump administration’s support by the business community has been based on its antiregulatory ideology and seeming focus on business expansion. However, the trade war, the destruction of federal health and foreign aid agencies, and attacks on American science and research universities are clear indicators that the people in charge do not understand the foundations of American wealth. This includes political stability, the rule of law, and rational economic policy. The combination of the hard power of America’s military and economic productivity and the soft power of America’s trade alliances, charity, stability, and values attracts foreign investment and enhances America’s political and economic power. The role of the SEC in refining the management of America’s publicly traded corporations has been a critical element of America’s political and economic power. The carbon reporting rule was an example of American leadership in corporate sustainability management. That leadership role has been abandoned, along with many other levers of American political and economic power. While this has been a predictable result of a second Trump presidency, it makes a dangerous world more dangerous and could result in a dramatic reduction of America’s wealth and standard of living.
Views and opinions expressed here are those of the authors, and do not necessarily reflect the official position of Columbia School of Professional Studies or Columbia University.
About the Program
The Columbia University M.S. in Sustainability Management program offered by the School of Professional Studies in partnership with the Climate School provides students cutting-edge policy and management tools they can use to help public and private organizations and governments address environmental impacts and risks, pollution control, and remediation to achieve sustainability. The program is customized for working professionals and is offered as both a full- and part-time course of study.
