By now, it should be abundantly clear to anyone following trends in the landscape of wider sustainability related regulation, that the United States federal government is not going to be the driver for any additional corporate standards. But that does not mean an absence of major new corporate sustainability reforms coming into play in the US.
In the vacuum left by a lack of federal mandates, state-level advocates and officials – and in some cases businesses themselves – are predicted to fill the void.
State of Affairs
In January, Colorado introduced a bill that would require companies that do business in the state with over $1 billion in revenue to report their greenhouse gas emissions. In 2023, California became the first state to set its own climate-related standards, with mandatory emissions reporting and climate-related risk reporting. And in New York and New Jersey, public officials recently reaffirmed their commitment to move forward with billions of dollars’ worth of sustainability infrastructure projects.
Long before this recent sustainability push, we also saw a consortium of states spring into action with their own Renewable Portfolio Standards (RPS). These regulations mandate how much energy a state’s utilities must supply from renewable energy sources. RPS have already been implemented in 38 out of the 50 states and the District of Columbia, with many states setting ambitious targets for themselves. What’s more, some of these standards date back as far as the early 2000s and have survived multiple partisan policy shifts, which speaks to the staying power of state-run initiatives.
As time goes on, some states will undoubtedly find more ways to continue to meet their sustainability objectives. That complicates things for business leaders. Instead of one, unified approach to specific sustainability related topics, companies could be faced with complying with as many as 50 unique policies. As a case in point, it’s highly unlikely that states such as California and Texas are ever going to align on this issue. So, what does that mean for a company that wants to operate in two of the biggest economies in the country, how do they stay compliant in both jurisdictions? The easy answer is to stay vigilant. Understanding what your obligations are is the first step.
Ticket to Trade
Looking further afield, another major factor in all of this is the reality that many of the largest U.S. businesses are multinational, which means they will not only need to comply with sustainability mandates locally, they will also need to contend with requirements in places like the European Union (EU), which recently introduced its Omnibus Simplification Package, and Japan, which just announced the release of its finalized sustainability disclosure standards in line with the climate reporting standards introduced by International Financial Reporting Standards (IFRS) Foundation’s International Sustainability Standards Board (ISSB), and countless other markets around the world. However, recent developments – such as the vocal opposition to EU sustainability initiatives like the Corporate Sustainability Due Diligence Directive (CSDDD) and the introduction of new legislation to essentially render the CSDDD toothless stateside – may also have an impact, with consequences as yet unknown.
Many companies currently design their global sustainability reporting and wider compliance practices in alignment with the toughest requirements in place across the jurisdictions in which they operate. Often, that’s easier and more effective than trying to cherry pick different practices in different markets across a worldwide operation and its associated supply chains. For that reason, multinationals who want a global ticket to trade across the EU, the Asia Pacific region, or in a more regulated U.S. state, such as California, will likely adjust their global practices accordingly.
The End Isn’t Near
As much as some analysts seem set to continue to forecast the death of ESG, businesses believe that there is just too much invested at this point for them to break away from it completely. While some global government regulators may view that as throwing good money after bad, the majority of business leaders know that potential reputational and operational harm can result from failing to meet their stakeholders’ sustainability related expectations. Simply put, they could be far too serious and costly to ignore. In fact, many experts believe that many U.S. companies will continue to pursue sustainability policies and strategies, if for no other reason than they see it as a sound, long-term business practice. Albeit in a much quieter manner.
While sustainability may not be the way to score any political points right now, it’s also too far down the road to be rendered completely redundant. Despite recent events, businesses need to stay proactive and vigilant to ensure they do not leave themselves open to a new batch of vulnerabilities and risks.
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