Commentary

ICYMI, There’s Been A Change in Policy

There was only one story this week, as Joe Biden finally stepped into the White House, but for many the real work is only just beginning.

Michael Lewis’s The Fifth Risk is a fascinating account of the transition of power from the Obama to the Trump administrations in early 2017. The book emphasises the critical importance of federal agencies to the safety, even survival, of civil society in the United States, a point rarely made in a country with long-held reservations about big government.

Lewis records encounters with a diverse array of dedicated public servants, including data scientists and climatologists, working tirelessly behind the scenes to avoid myriad unconsidered catastrophes. But the image that lingers is of the empty chairs and missed meetings in the nascent stages of the Trump administration as incumbent agency staff waited to hand over carefully laid out transition plans.

Having summarily sacked transition czar Chris Christie, Trump was in no position to send appointees to these meetings, nor was the effort helped by delays in the confirmation process, resulting in months of drift. In 2021, incoming President Joe Biden has hardly experienced a textbook transition so far, but it is hard to imagine many federal agency staff drumming the fingers on tables – or staring anxiously into their webcams – waiting for meetings that never materialise.

Take the Department of Labor. Among the many executive orders signed on inauguration day, was one to review the rule rushed through in the second half of 2020 to constrain use of ESG factors in the management of retirement plans. The final ‘fiduciary rule’ became effective on January 12, making it more complex to unpick but far from impossible, with some experts expecting it to be re-written to allow inclusion of sustainable investments in default plans.

The new administration’s impact on the DoL will be nothing compared to the changes it will wring at the Environmental Protection Agency, responsible for administering roughly half the polices Biden is seeking to reverse with immediate effect. Intentions have already been signalled through a ban on new permits for oil and gas exploration on public lands including the Arctic National Wildlife Refuge; Biden is also expected to revoke the permit for the controversial Keystone XL Pipeline.

The World Resources Institute recently made the case for Biden to “rescind” the Affordable Clean Energy rule and waste no time in decarbonising electricity generation to make good on campaign goals to achieve 100% clean electricity by 2035. The WRI also argued for a rollback of a recently-finalised EPA rule to exempt certain industrial sectors from emissions thresholds, and called for Biden to establish federal standards for low-carbon steel and cement.

Much change is also expected at the Securities and Exchanges Commission. Appointing a new chair, likely to be ex-CFTC chair Gary Gensler, gives Democrats three out of five commission seats, which should pave the way for progress on ESG disclosures. The interim appointment of Allison Herren Lee, a strong proponent of standardised disclosures, as SEC chair may be an indicator of direction of travel.

New agencies are also on the agenda, with Biden expected to sign a further executive order to re-establish the Presidential Council of Advisers on Science and Technology, ahead of a Climate Leadership Summit scheduled for April.

Nor will defence and national security agencies remain untouched. Under a Biden administration, climate considerations will assume greater importance in domestic and national security.

The Transportation Department has been instructed already to review a regulation that makes it easier to transport LPG by rail. The department will also toughen fuel-efficiency standards for cars and light trucks, in league with the EPA.

An environmental justice department is expected to be established within the Department of Justice to bolster enforcement action against polluters and offer restitution to those already impacted by environmental harm. To address the disproportionate impact of air and water pollution, 40% of clean energy funds will be committed to disadvantaged families.

Some of the most important work may be done at the Treasury Department, where incoming secretary Janet Yellen is expected to lead work on the viability and level of a carbon tax, having already claimed to have identified a path to bipartisan support.

Yellen will also monitor closely developments at the Federal Reserve, where she was previously chair, as it becomes a member of the Network of Central Banks and Supervisors for Greening the Financial System, and takes a more active role in the Financial Stability Board’s Task Force on Climate-Related Financial Disclosure.

As noted recently by Ceres VP for Governmental Affairs Anne Kelly, the new administration is aiming for a “whole government approach” in which all agencies play their part in tackling climate change, and are led by science-based data in their decision making.

That might be a mixed blessing for Lewis’s data scientists and climatologists, but on balance I expect they’d prefer over-work to kicking their heels.

The practical information hub for asset owners looking to invest successfully and sustainably for the long term. As best practice evolves, we will share the news, insights and data to guide asset owners on their individual journey to ESG integration.

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