Corporate Responses under the New US Administration: The Challenge of Decarbonizing and Evolving ESG Strategies

Director of Zeroboard Research Institute Director of the Global Sustainability Standards Board (GSSB)

Tomoo Machiba

US President Trump's inauguration took place on January 20th, and on the same day he signed an executive order to once again withdraw the US from the Paris Agreement of the United Nations Framework Convention on Climate Change (UNFCCC) *1) , raising concerns about the impact that this major shift in the US's decarbonization and ESG response will have on the rest of the world.

Of particular note is the rapidity with which major US companies have changed course even before the inauguration. Meta, which owns Facebook and other companies that have long been at odds with Trump, announced that it had discontinued its internal diversity, equity, and inclusion (DE&I) initiatives and its social media fact-checking functions, and that it would donate $1 million to the inauguration. Other companies that have taken similar steps include Microsoft, Amazon, Ford, Walmart, and McDonald's, who have either discontinued or reviewed their diversity initiatives. *2) It was almost comical to see the Top of tech companies that are leading the way in global change, including Tesla's Elon Musk, gather at the inauguration and receive such generous treatment from the new president.

Another notable development is the succession of Financial Institution withdrawing from the sector-specific initiatives of the Glasgow Net Zero Finance Alliance (GFANZ), a UN-backed coalition of willing individuals promoting a decarbonized transition. To date, Citigroup, Bank of America, and Goldman Sachs Group have withdrawn from the Net Zero Banking Alliance (NZBA), BlackRock and others from the Net Zero Asset Company Alliance (NZAM), and Moody's and Chicago Board Options Exchange from the Net Zero Financial Service Providers Alliance (NZFSPA) *3) .

However, each company stated that it would continue its efforts toward decarbonization, and BlackRock stated that "withdrawing from the group will not change our approach to the investment management of client assets." *4) Conservative groups have reportedly threatened legal action against major companies regarding DE&I programs, and financial companies are facing lawsuits from various states and investigations by regulatory authorities for collusion and anti-competitive practices in Settings ESG targets. This move appears to be a response to current risks. In the insurance industry, anti-ESG movements intensified in the United States in 2023, leading European and American companies and three major Japanese non-life insurance companies to withdraw from the Net Zero Insurance Alliance (NZIA). This move could be seen as a similar move. *5) *6)

June 2024 in Europe The right-wing and far-right forces significantly increased their vote share in the European Parliament elections in September 2018, raising concerns that decarbonization and ESG measures may be slowing down. In 2013, former Italian Prime Minister and European Central Bank President Mario Draghi published the so-called "Draghi Report" aimed at strengthening EU competitiveness. He recommended a 25% reduction in disclosure requirements, including the Corporate Sustainability Reporting Directive (CSRD), and a 50% reduction for small and medium-sized enterprises, citing the heavy burden on companies and the potential for stifling innovation. *7) Former French Prime Minister Michel Barnier, who personally led the CSRD as a European Commissioner, proposed postponing the CSRD in October . Then, in November, European Commission President von der Leyden announced that the CSRD , the Corporate Sustainability Due Diligence Directive (CSDDD), and the EU Taxonomy should be combined into an "omnibus regulation." German Chancellor Olaf Scholz also called for a two-year extension of the CSRD and the easing of application standards this January . *8)

How should Japanese companies interpret these trends in Europe and the United States, and how should they act? David Carlin, a former member of the United Nations Environment Programme Finance Initiative (UNEP-FI) who has long analyzed and disseminated information on ESG trends, says, "It's not time for a slowdown; it's time for further evolution." In other words, companies have moved from publicly promoting sustainability to quietly implementing the commitments they've made. Accordingly, sustainability professionals will be expected to connect the organization and provide advice on New business ventures, transactions, supplier relationships, and strategic decisions. Sustainability will also become a source of economic value, such as opportunities to develop new markets and reduce costs through improved efficiency. Financial Institution will no longer impose ESG practices on their investments or lenders, but will instead quietly support their clients' decarbonization and sustainability efforts as trusted partners. *9

The EU's various sustainability regulations were established after many years of discussion, and the urgency of climate change measures is widely shared among citizens, so although there may be some changes to the scope and timing of application of CSRD etc., it is thought that there will be no major changes to the current Contents. The fact is that a backlash has now erupted against the fact that European Commission bureaucrats have not been sufficiently open to listening to those who may be left behind by the introduction of regulations, and the reality is that national leaders are busy taking these things into consideration.

Source: AMERICA IS ALL IN campaign site, a group of leaders from various sectors who support climate actionwww.americaisallin.com

Meanwhile, in the United States, Trump has gone beyond traditional democratic procedures and issued a series of executive orders to introduce anti-carbon, ESG, diversity, and immigration policies, clarifying the opposing axes of what kind of society we should aim for. In response, the governors of 24 states that are members of the United States Climate Alliance have conveyed their commitment to the Paris Agreement to the United Nations, and former New York City Mayor Michael Bloomberg has announced that he will shoulder the US share of the UNFCCC operating budget. *10) . Also, Apple's board of directors has asked shareholders to vote against a proposal to eliminate its DE&I program . *11) While business leaders will bow their heads for the time being, we can expect to see a gradual rise in opposition to the president. The four years of waiting have only just begun.

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*1)Presidential Actions, January 20, 2025, “Putting America first in International Environmental Agreements”: https://www.whitehouse.gov/presidential-actions/2025/01/putting-america-first-in-international-environmental-agreements/

*2) Nikkei, January 8, 2025, "Meta Abolishes Fact-Checking, Changes Policy to Approach Trump": https://www.nikkei.com/article/DGXZQOGN07DAQ0X00C25A1000000/

Nikkei Shimbun, January 20, 2025, “US companies dropping diversity banners”: https://www.nikkei.com/article/DGKKZO86156960Z10C25A1TYA000/

Business Insider, July 15, 2024, ”Microsoft laid off a DEI team, and its lead wrote an internal email blasting how DEI is no longer business critical’ ”：https://www.businessinsider.com/microsoft-layoffs-dei-leader-email-2024-7

Nikkei, February 8, 2025, "Amazon omits 'diversity' from annual report due to hiring policy": https://www.nikkei.com/article/DGXZQOGN073PO0X00C25A2000000/

*3) Bloomberg, January 1, 2025, "Banking industry pulls out of climate change group one after another – Citi and BofA also announce withdrawal": https://www.bloomberg.co.jp/news/articles/2025-01-01/SPDW4ST0G1KW00

Bloomberg, January 10, 2025, "BlackRock Leaves Climate Action Group – Following in the footsteps of major US banks": https://www.bloomberg.co.jp/news/articles/2025-01-10/SPUB4ZDWX2PS00

Research Institute for Environmental Finance, a general incorporated association: "The Chicago Board Options Exchange (CBOE) has withdrawn from the Net Zero Financial Service Provider Alliance (NZFSPA), part of the UN-backed Net Zero Finance Alliance. This follows the withdrawal of Moody's in November last year (RIEF)": https://rief-jp.org/ct6/153237?ctid=

*4) Nikkei Shimbun, January 10, 2025, "BlackRock to withdraw from international framework on global warming": https://www.nikkei.com/article/DGXZQOGN100ZO0Q5A110C2000000

*5) Bloomberg, May 30, 2023, "Three major Japanese non-life insurance companies withdraw from decarbonization insurance industry alliance – following a series of withdrawals in Europe": https://www.bloomberg.co.jp/news/articles/2023-05-30/RVG91AT0G1KW01　

*6) NZIA was dissolved in April 2024 and renamed the Forum for Insurance Transition to Net Zero (FIT). https://www.unepfi.org/forum-for-insurance-transition-to-net-zero

*7) Japan External Trade Organization, September 19, 2024, “Former ECB President Draghi Releases Report to Strengthen EU Competitiveness, Proposal for Issuance of Massive EU Joint Bonds”: https://www.jetro.go.jp/biznews/2024/09/14e4bbe4f128296e.html

*8) Japan External Trade Organization, November 18, 2024, "EU leaders reaffirm policy to strengthen Industry competitiveness, European Commission indicates direction for restructuring of CSRD and CSDDD": https://www.jetro.go.jp/biznews/2024/11/31815ac353ad8046.html

Research Institute for Environmental Finance, "German Chancellor Olaf Scholz sends letter to European Commission President requesting two-year extension of the Corporate Sustainability Reporting Directive (CSRD) and relaxation of application standards. Intended as a response to the German election and a shift to measures to strengthen EU competitiveness (RIEF)": https://rief-jp.org/ct4/152656

*9)David Carlin, “3 Ways Sustainability Will Change In 2025: Are You Ready?”, Forbes Online, 23 January 2025 https://www.forbes.com/sites/davidcarlin/2025/01/23/3-ways-sustainability-will-change-in-2025-are-you-ready　

*10)Reuters, January 24, 2025, "Bloomberg's charity covers Trump's decision to cut UN climate funding": https://jp.reuters.com/markets/commodities/VGQPMZLF3ZPLHD5LXQEOAOPZ6E-2025-01-24/

*11)BCC NEWS Japan, January 14, 2025, "Apple's board calls on shareholders to oppose proposal to abolish diversity program": https://www.bbc.com/japanese/articles/cdjd38y0dr7o