By Steven Cohen, Ph.D., Director of the M.S. in Sustainability Management program, School of Professional Studies
With high-profile corporations fleeing California’s higher taxes and rigorous regulatory requirements, Governor Gavin Newsom is trying to retreat on some new environmental rules, perhaps to neutralize conservative political attacks on “woke management.” Like New York Governor Hochul’s pathetic and poorly thought-through retreat on congestion pricing, Newsom sought a delay in California’s first-in-the-nation greenhouse gas corporate reporting requirements. The California legislature rejected Newsom’s attempt at delay. According to a report by H. Claire Brown in the Wall Street Journal:
“California’s greenhouse gas emissions reporting requirements are slated to move forward as originally planned after a proposal to delay them by two years failed to sway state legislators. Gov. Gavin Newsom last year signed a pair of laws requiring companies to report greenhouse gas emissions and climate-related risks. The bills, SB 253 and SB 261, say that initial disclosures are due in 2026. As the world’s fifth-largest economy, California’s policies affect corporate behavior nationwide. An analysis by the watchdog group Public Citizen estimated that at least 75% of Fortune 1000 companies would have to disclose greenhouse gas emissions under the state’s law.”
California’s business environment can be challenging, and both New York and California are sometimes perceived as high-cost states that are hostile to business. In contrast, states like Florida and Texas are attracting business and people due to their low taxes and anti-regulatory environments. However, the extreme “free market” approach is also coupled with attacks on reproductive, immigrant, and gay rights that can create other problems for businesses and people who migrate there. California and New York attract businesses due to the ability of those states to retain and attract global brainpower. With 80% of our Gross Domestic Product in the service economy, brainpower is critical. In New York and California, higher business costs are matched by higher business revenues. Both states welcome people from other parts of the world. Nearly 40% of New York City’s residents were born outside the United States. Moreover, while politicos in Texas and Florida may deny or ignore the science of climate change, they still face significant damage from climate-induced extreme weather events and lack the tax base and political will to fund climate-resilient infrastructure. The difficulty these low-tax, low-regulation, and right-wing states will face in the future will arise from both the costs of damage from extreme weather events they are poorly prepared for and the higher energy costs they will have to pay as the fossil fuels they promote are driven from the market by renewable energy coming down in price.
The move toward managing carbon emissions and requiring corporate reporting of these emissions is not ideological overreach but a response to objective environmental conditions. You can’t manage something without measuring it, and so you can’t reduce greenhouse gas emissions until you know who is creating them. California has always been ahead of the rest of the country in protecting their environment because the millions of people attracted to California moved there for economic opportunity and natural beauty, and both were threatened by visible, unhealthy air pollution. Smog was impossible to ignore in mid-twentieth century Los Angeles, where before air pollution regulation, one could not see the mountains from downtown L.A. Today, you can because California’s car culture resulted in early recognition that we needed to apply new technologies and government rules to control air pollution. This demand for regulation was bipartisan in California and went nation-wide in the 1970s, leading to federal laws regulating air, water, and toxic waste pollution.
In the 21st century, Californians see the objective impact of climate change with massive forest fires, landslides, droughts, floods, and other forms of destruction from global warming and extreme weather events. This has led California to promulgate a series of laws requiring a gradual transition to renewable energy from fossil fuels. One set of laws phases out the sale of motor vehicles powered by fossil fuels. Other laws encourage renewable energy, and other policies require corporate reporting of greenhouse gas emissions. While federal rules from the Security and Exchange Commission (SEC) for greenhouse gas reporting are delayed by the courts, California and the European Union are pressing ahead. To some degree, this reporting is already underway as investors and other corporate stakeholders demand ESG—or environmental, social, governance—reporting.
Even without specific requirements, nearly all major corporations have been disclosing their greenhouse gas emissions. According to the Center for Audit Quality (CAQ):
“Most companies have a dedicated ESG page on their corporate investor relations website where the company often discloses ESG information in a standalone PDF report. However, some companies issue ESG information in multiple separate smaller reports such as SASB, GRI, or TCFD indexes and/or reports. Some other companies designed an ESG interface web portal to disclose their ESG information. Most S&P 500 companies (98%) disclosed some level of ESG related information for periods ending in 2022. That is roughly consistent with the 99% of S&P 500 companies that did so in 2021.”
Many companies use the same accounting firms that produce and audit their financial reports to report and verify their environmental disclosures. These accounting firms are building up their environmental expertise. The problem is that current corporate ESG disclosures adhere to a variety of measurement standards produced by non-governmental organizations. The absence of a single official definition of metrics, enforceable by law, means that these reports are difficult to compare across companies and potentially inaccurate. While financial accounting terms are defined by the SEC, ESG disclosures are not.
We can expect continued attacks and efforts to retreat from sustainability goals. Just as California’s legislature was asked to retreat on greenhouse gas reporting rules, New York’s City Council recently considered delaying the city’s path-breaking effort under Local Law 97 to decarbonize the city’s large buildings. In that case, the Mayor and his Department of Environmental Protection Commissioner successfully resisted the effort to delay implementation.
In the private sector, many companies find themselves under political attack for promoting ESG management in their organizations. Laurence Fink, the Chairman and CEO of Blackrock, was an early proponent of ESG investment and recognized and argued for the importance of sustainability finance. In Fink’s 2021 letter to CEOs, he observed that:
“In January of last year, I wrote that climate risk is investment risk. I said then that as markets started to price climate risk into the value of securities, it would spark a fundamental reallocation of capital. Then the pandemic took hold – and in March, the conventional wisdom was the crisis would divert attention from climate. But just the opposite took place, and the reallocation of capital accelerated even faster than I anticipated. From January through November 2020, investors in mutual funds and ETFs invested $288 billion globally in sustainable assets, a 96% increase over the whole of 2019. I believe that this is the beginning of a long but rapidly accelerating transition – one that will unfold over many years and reshape asset prices of every type. We know that climate risk is investment risk. But we also believe the climate transition presents a historic investment opportunity.”
However, by 2024, responding to the political attack on “woke management,” he dropped explicit references to ESG while re-branding sustainability investment as “transition investment.” In a Wall Street Journal piece published in March 2024, Jack Pitcher and Amrith Ramkumar observed that:
“Climate investing is booming at BlackRock. Just don’t call it ESG. After crusading for years for investment funds and companies to take into account environmental, social and governance factors, Larry Fink has purged the letters from his vocabulary. He attempted to use BlackRock’s clout as the steward for millions of investors to prod companies toward climate-friendly policies and press them to disclose the social effects of their businesses. He long argued that the world’s largest asset manager and its peers could make money and make the world a better place at the same time. Fast forward to 2024, and the chief executive has stopped mentioning the acronym in public letters and comments. He retreated after a backlash from conservative pundits against “woke capitalism” made the term politically toxic. Furthermore, he faced criticism, even in the finance industry, from people who said he was moralizing, playing God and stepping beyond BlackRock’s fiduciary duty to maximize financial returns for clients. BlackRock is still wagering that fighting climate change will be a generational investment opportunity—but the company is no longer pushing for changes in corporate behavior, talking about hard-to-quantify social issues or actively promoting ESG investing criteria. Instead, it is directing billions of client dollars toward infrastructure projects that will help speed the transition from fossil fuels.”
The drive for sustainability management built on generally accepted sustainability metrics continues despite political backsliding and ideological attacks. The momentum behind this change in how organizations are managed will continue because the complexity of our economy and the fragility of our planet require a more sophisticated approach to running our organizations. These are objective conditions that must be addressed, and the persistence of private-sector sustainability management is evidence that these changes transcend politics.
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.
