February 26, 2025 • 35 mins
With a near constant flow of new executive orders and policy decisions, it’s challenging for investors to keep up with what US President Donald Trump’s administration is doing. In this episode of ESG Currents, Bloomberg Intelligence senior ESG analysts Gail Glazerman, Rob Du Boff and Andrew Stevenson are joined by colleagues Nathan Dean and Andrew Silverman to dissect the most significant changes that could impact E, S and G, including the fate of the Inflation Reduction Act and the consequences of intense DEI scrutiny.
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Episode Transcript
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Speaker 1 (00:09):
ESG has become established as a key business theme as
companies and investors seek to navigate the climate crisis, energy transition,
social mega trends, mounting regulatory attention and pressure from other stakeholders.
The rapidly evolving landscape has become inundated with acronyms, buzzwords,
and lingo. We aim to break these down with industry experts.
(00:30):
Welcome to ESG Currents, your guide to navigating the evolving
ESG space, one topic at a time. Brought to you
by Bloomberg Intelligence, part of Bloomberg's research department, with five
hundred analysts and strategists working across all major world markets.
Our coverage includes over two thousand equities and credits, as
well as outlooks on more than ninety industries and one
(00:51):
hundred market indices, currencies and commodities. I am Gail Glazerman,
senior ESG Integration Analyst, and I'm joined by Rob Dubof
and Andrew Stevenson, also senior analysts on the ESG team,
with a focus on governance and climate respectively. Since the
change in administration in DC, there has been a near
(01:12):
constant stream of news and policy shifts, with so much
going on, it's a challenge to keep up with all
the developments, never mind assessing the potential impact. That is
our goal today to review some of the most important
ESG developments and put them in some perspective. To accomplish this,
Rob Andy and I are joined by our colleagues Nathan Dean,
(01:32):
Senior US policy analyst, and Andrew Silverman, government and tax analyst.
Maybe just to start, Rob, one of the topics that
seems most in the forefront from the new administration is
DEI diversity, equity and inclusion. And I'm just wondering what
you are seeing in how you think companies are responding.
Speaker 2 (01:56):
Yeah, thanks, Gil, You know, I would say kind of.
There was an executive order that came within the first
day of the administration basically not only banning quote unquote
illegal DEI at the government level and across contractors, but
also kind of tasking all the agencies to work with
(02:16):
the Department of Justice to identify potential enforcement actions. So
really it's not just about government service, which it was
in the first administration. It really is impacting companies now.
Now the rub there is that the executive order called
out illegal DEI, which it doesn't really define what that
(02:39):
is that, you know, it reminds me of those drug
commercials you see where it's you know, don't take if allergic,
and obviously you shouldn't take if it's allergic, but also
how do you know if you're allergic if you've never
taken it before. So it's it's because it's so vague.
You have companies that are now just very I guess
(02:59):
tim it is the right word. You know, they don't
necessarily want to test where those boundaries are, so in effect,
we're basically seeing a rollback of the EI initiatives.
Speaker 3 (03:11):
Now.
Speaker 2 (03:11):
I think the issue is really not so much on
some of the inclusion aspects, but more around diversity and equity,
so things like quotas and some of these targets the
companies have, whether it's you know, having women or people
of color in the in represented more management, or whether
(03:33):
you're talking about suppliers diversifying the supplier base, those initiatives
are really starting to go away, you know again because
I think that maybe has a hard target, which obviously
companies like giving heard targets because it's easier to communicate,
easier for investors to follow along with, but they also
(03:54):
put a bigger target on your back. So what we're
really seeing is a lot of quieting down that front.
Speaker 1 (04:01):
Yeah, I'd say one thing I've learned is how many
large companies have government contracts that have become particularly sensitive
to how they talk about, at least their initiatives. And
to that end, do you think we're seeing tangible changes
and how much of this is really a matter of
a form of green hushing.
Speaker 2 (04:20):
I would argue, and you know, I've talked about this
before on the podcast, how a lot of these initiatives
were maybe not well thought out and they were reactionary,
you know, coming about in twenty twenty with the George
Floyd protests. I mean, they were all well intentioned, but
maybe not as well thought out, and you know, just
as irrationally, you're starting to see them pull back, you know,
(04:43):
whereas programs that are kind of more focused on, you know,
how do we grow the customer base, how do we
recruit and retain more talented employees. I think those programs
by another name will definitely stay along. But some of
the more let's call them performative metrics, you know, you
might be seeing a lot less of those.
Speaker 4 (05:03):
Yeah.
Speaker 1 (05:03):
One thing that hardens me is seeing some companies at
least try to put this more in financial context and
talk about specific things that they're doing and how it
actually helps and impacts their business exactly.
Speaker 3 (05:14):
So, one of the.
Speaker 1 (05:16):
Bigger accomplishments from the Biden administration was the Inflation and
Reduction Act, which obviously has a huge amount of implications
for the ESG space. And Andrew Silverman to start, maybe,
can you talk about how you see that evolving with
the new administration, especially in the first few weeks, anything
we should be looking at.
Speaker 3 (05:37):
Yeah. Sure.
Speaker 5 (05:38):
So the House and the Senate are still battling it
out to determine whether or not we're going to have
one bill or two bills. I think if we go
with the House's strategy, it's more likely that they're going
to be a bit more aggressive towards the Inflation Reduction Act.
If we go with it the Senate plan, it's I
(05:59):
think likely we're going to get a softer version of
an Inflation Reduction Act type repeal. The House in twenty
twenty three actually came up with a template for repealing
the Inflation Reduction Act called the Limit Safe Grow Act,
and that act rolled back several tax credits. It also
(06:24):
repealed a whole bunch of tax credits, like the nuclear
power production tax credit, the Sustainable Aviation fuel credit, clean hydrogen.
Essentially anything new that the Inflation Reduction Act put into
put into place the the Limit Safe Grow Act would
(06:44):
either turn back or repeal. But the Senate, of course,
so that bill actually passed in the House, it went
over to the Senate, but it was never picked up
at this end. Obviously the Democrats were in control of
the Senate, so so we don't know how the Senators
feel about that template. But it's really all that we
have in terms of specificity regarding how the inflation production
(07:09):
I would be dealt with by the Republicans.
Speaker 1 (07:12):
In that past, because I know late last year there
was something close to twenty Republican members of Congress that
actually came out and requested preservation of certainly some of
the provisions there. Do you think that that is still
an issue about Congress and anyone of any thoughts on
(07:35):
is Congress really the driver here or how much of
this would be within the executive brand?
Speaker 5 (07:40):
Oh, I think that. Wow, this is just my view,
but I think that the president really has very little
to do with it. I mean it's Congress's power to
tax and spend. And even though the president likes to
talk big about tax, no president has ever done major
legislation on tax by him or herself, So that's done
(08:02):
really an option. I mean, tax bills nearly always start
in the House Ways and Means Committee and then proceed
through the House and then go to the Senate. The
only slight exception to that rule is the nineteen eighty
six Tax Act, which started at Treasury and then they
(08:24):
restarted a Treasury and then it ended up in the
House of the Senate. But by the time it got
to Congress, it had become a vastly different act. So
even though Reagan was pushing it forward, it was Congress
that was really sort of leading the charge on that.
And I think in terms of, you know, how much
of the inflation Duction it gets repealed, or if it
gets parts of it get repealed at all, is about revenue.
(08:46):
How much they need in order to make Trump's Tax
Cuts and Jobs Act permanent. And if we take them
at their word and they're going to be, you know,
spending something like uh clost of three trillion dollars, then
they're going to need a fair amount of cuts in
order to pay for that that they've talked about making
(09:09):
between one and a half trillion and two trillion in cuts.
And so if if that's what they have to do,
then I think their primary target is the inflation real
chenet it then it has a different strategy than the
House in terms of how they're going to come up
with that that revenue. So, uh no, we'll have to see.
Speaker 2 (09:27):
Yeah, I think Andrew makes a good point because you know,
I've heard certainly from esg Land and Gail you kind
of alluded to it that you know, these incentives are
very popular, particularly in red states. They're bringing a lot
of jobs, and you know, I agree, in a vacuum,
they're definitely you know, they're definitely popular. They're definitely benefiting
disproportionally in the Red states. But you know, to to
(09:50):
Andrew's point, you know.
Speaker 3 (09:53):
It's not in a vacuum.
Speaker 2 (09:54):
You know, these there are other legislation, particularly that the
extension of the Trump tax cuts, and you know, when
you're kind of weighing continuation of some of these IRA
incentives versus extending the Trump tax cuts, that changes the
calculus quite a bit, right exactly.
Speaker 4 (10:11):
Yeah, you know, and I'd like to weigh in here
in just a minute as well, just because you know,
from the client perspective, what we're telling clients is that
you know, whether the House pursues one big, beautiful build
or the Senate does two bills, it really doesn't matter.
Speaker 3 (10:24):
From the market perspective, what matters.
Speaker 4 (10:27):
Is is that in order for the Republicans to advance
four and a half trillion dollars worth of text cuts,
the Inflation Reduction Act is going to be targeted as
a way to offset that.
Speaker 3 (10:36):
Now we've seen.
Speaker 4 (10:37):
It a high level and at an introductory level that
they want to go after the IRA. But like Rob
pointed out, there's a lot of popularity and know there's
a lot of cap X coming in from non US
entities into Trump states that are providing local lawmakers, you know,
ammunition in their response to Washington saying please.
Speaker 3 (10:55):
Don't touch the IRA. I have a plant being built.
But it's also important.
Speaker 4 (10:59):
So I guess I'll say this is that I don't
think the IRA is going to be overly touched.
Speaker 3 (11:04):
By the congressional aspect.
Speaker 4 (11:05):
But I also wouldn't throw out just the threat of
the IRA from Doge because you have this idea of
impoundment where you know, yes, there are tax credits, there's
also carrots. You know, there's incentives, and you know, unless
this is actually unless the funds are in your bank account,
you know, the government can always clot back.
Speaker 3 (11:24):
I like the joke. It's like any banker listening right now.
Speaker 4 (11:26):
You know, you don't quit until the bonus is in
your bank account because if you quit before you know,
you you potentially you're going to lose it, you know.
So the impowment fight is something that's going to be
trickling through Washington over the next year. Certainly important, uh
from this case. And I would also just say that
Treasury always has the ability to go back and change
the parameters of a tax cut through the rulemaking process.
(11:49):
So you know, Congress is the one that sets the
stage at one hundred thousand foot level, but Treasury and
the irs are the ones to figure it out at
the ten thousand or even the five foot level, and
they do have the ability to go back, can change
the parameters of the text cuts via the rulemaking process.
So there's a lot of changes that could could potentially come.
But optimistically, in terms of the IRA, I think more
(12:10):
of it if we were to have this discussion next year,
I think more of it still exists than not, just
because of what Rob pointed out, that popularity of the
IRA in those Trump States.
Speaker 6 (12:21):
And I'll time in here with Andy Stevenson. Induially, if
you look at what the market is expecting from some
of this, So if you see companies like Constellation Energy
is up forty four percent this year, clearly they'll think
that they're going to lose their nuclear power credits in
the next you know, year or two, given that you know,
they're not actually building any new nuclear plants or anything
(12:42):
apart from you know, possible merger that's going on. But
clearly the signal in the marketplace is that some of
these things that are have been set up, and you know,
we need the power, especially in the power sector. I mean,
the underlying current of what we need for AI is
the it more is we need more and so a
(13:02):
lot of these incentives and you know, kind of HARKing
back to what Nathan said, they're paid to play, they aren't.
They aren't there until they're available. But the some of
the economics of getting some of these projects online do
rest on these things existing. So they are pretty critical
to the investment process. We are looking for, you know,
a mead a pretty reasonable hike indie amount of power
(13:25):
demand that the US is looking for sort of a
factor of growth of five x or more relative to
the last ten years, and so a lot of the
things with related to the power sector. You're going to
need You're going to need the power, so you know,
starting with with that as a premise, and you know,
looking at what the market signals are already suggesting. I
kind of agree with both both these fellas that that
(13:47):
we are going to see more of the ira uh
hang on than not.
Speaker 1 (13:51):
We've been talking about the government for obvious reasons, but
has does anyone have an opinion about the voice of
the corporate sector and how and if they're weighing in
and how much that might matter in this resolution.
Speaker 6 (14:05):
So one test of this is Exon Mobil, who's looking
to build just a monster hydrogen plan. It's a seven
billion dollar hydrogen plant in Louisiana. They're waiting April is
when they're supposed to do their FID and whether they
go ahead or not. So clearly they are weighing whether
they should make this investment. It's a pretty the economics
(14:28):
work because of the incentives in the program. So it's
not clear that this we get built otherwise. So there
is a question of that. So I think we are
starting to I would imagine you're starting to see some
pressure coming from companies just to understand where things can
land in the next several months, because obviously there's a
lot of dollars that want to kind of invest and
(14:51):
their ability to do so will it's certainly hinging on
some of these decisions being made.
Speaker 1 (14:56):
Maybe the other enderw do you have any thoughts on
that or how that plays a sail it?
Speaker 5 (15:01):
So, so you had asked about the executive branch versus
the legislative branch on these sorts of tax reforms. If
Congress doesn't cut back in the Inflation Production Act, could
Treasury or the I R S or even the President
himself do something to cut back on these provisions. Well,
(15:24):
I think that there is a possibility and maybe even
Congress goes for this. There's this's been there's been this
concept in the past couple of years. The FIAC Foreign
Entities of Concern UH caveat that that legislators have have
been putting into bills to make it more difficult for
companies to claim the tax credits that the Inflation Reduction
(15:47):
Act would allocate to them. And what this provision says
is that if the materials well, so so the the
The electric vehicle credit is the best example of this.
And basically they said, if any part of the battery
is coming from China, Russia, Iran or the minerals that
(16:13):
go into the battery or coming from those countries, then
you don't get the benefit of the credit, right And
it's actually the provision has actually been extremely successful. It's
taken the number of models that qualified for the electric
Vehicle tax credit all the way down to sixteen. And
it's not only because these companies are now barred from
(16:36):
doing business with companies that are not just controlled by
the Chinese government or the Russian government, but companies that
have twenty five percent of their board represented by foreign government,
or even companies that US companies that are licensing technology
(16:57):
from these sorts of companies are barred from getting the
full tax credit. So I think that there's some value
in looking at the fine print, not only in the
legislation that eventually comes out from Congress, but then administratively,
can the Trump administration make it so difficult for companies
to be able to clean these credits that the money
(17:19):
is essentially just left on the table because you know,
the onus is on the companies to prove that this
limitation doesn't apply to them. It's not on the governments.
The burden isn't on the government to prove that they
don't get the credit right. So, because companies have that responsibility,
in some cases, you can't prove a negative right, So
(17:41):
they basically, I think they're hoping they're just throw in
the towel and that's the end of that, and so
they can claw back some revenue that way.
Speaker 1 (17:49):
And we've talked about executive actions like that, and we've
talked about congressional laws. Was there any unfinished business? Does
anyone have any views or anything they'd high light? Is
unfinished business from rules under the bind administration that didn't
get finalized. That would be maybe some of the easier
pickings related to ESG.
Speaker 6 (18:10):
I think, certainly on the methane front, that's certainly going
to be an issue in terms of the methane rule
that was passed during the Biden administration. It seems probably
difficult for it to continue on in its current form.
Given the fee structure and the you know, the costs
that are being asked for our participants to pay, So
(18:31):
that that's certainly one thing that could certainly be kind
of on the blocks in the next several months or years.
Speaker 3 (18:38):
And I'll say as.
Speaker 4 (18:39):
Part of the IRA, everybody loves talking about the electric
vehicle tax credit.
Speaker 6 (18:42):
I mean, that is the.
Speaker 3 (18:45):
One thing that I think people.
Speaker 4 (18:48):
The Republicans, especially when it comes from a congressional standpoint.
But you know, I would also just say that think
of think of deregulation and anything that's happened during the
Biden administration. Mean, there is real no magical wand. Essentially
somebody can wave and say go for it and deregulate
any rule that was finalized but not yet effective, which
(19:08):
there wasn't all that many. There was a little bit
in the Consumer Financial Protection Bureau, but most of them
not all that much. Any rule that was finalized but
not yet effective, they can wave that magical wand and say, yep,
the rule's not going to go on. We are seeing
efforts from the Republicans to potentially overturn some rules via
the Congressional Review Act. I haven't seen any in the
ESG space at the moment, but obviously you know we're
(19:29):
waiting for that.
Speaker 3 (19:30):
Congress does have.
Speaker 4 (19:31):
The ability within sixty legislative days, not calendar days, but
legislative days, which roughly it translates to around four to
five months. Anything that anything that was finalized after August,
the Republicans can go back and overturn via just a
simple vote in the House and the Senate.
Speaker 3 (19:49):
But I would also say when it comes to any
other types of deregulation, if you think that there's a
Biden error or even an Obama era rule that.
Speaker 4 (19:56):
The Republicans would want to potentially roll back, they have
to go through the rulemaking process.
Speaker 3 (20:01):
Again, it's called the Administrative Procedure Act.
Speaker 4 (20:03):
You have to have a proposal, you have to have
a comment period, you have to have a finalized you
have to have a cost benefit analysis.
Speaker 3 (20:08):
It takes time. The quickest I've ever seen it done
is around nine months, and that was for a very
small rule.
Speaker 4 (20:13):
And so, you know, we see this in the bank
space enough a lot, because there's a lot of sentiment
out there about deregulation. But the reality is is that
for a lot of these industries, the deregulation is not
going to hit in twenty twenty five, may not even
hit in twenty twenty six, but it'll be more likely
twenty twenty seven.
Speaker 5 (20:31):
And the Biden administration rushed as fast as it possibly
could to get a lot of the tax regulations out
before Biden left office, but there are some loose ends there.
So the Sustainable Aviation fuel Credit, the Commercial Clean view
Vehicle credit, the Clean fuel Production Credit forty five Z,
the Energy Efficient Home Improvement Credit, and the nuclear power
(20:55):
production tax credit, all of those didn't get final regulations.
And as Nathan is pointing out, if they got in
viral regulations, it's hard to then take those off the table.
But if they're just proposed, or if there's just a notice,
those can be dispensed with very easily. And so that's
just easy pickets for the Trump administration.
Speaker 2 (21:16):
Yeah, I mean, and I'll even add so on the
ESG investing front, a lot of the Trump one point
zero rules actually didn't pass till you know, November or
the fall of let's call it the fall of twenty twenty.
So a lot of those rules, you know, because it
took so long to get them done, the Biden administration
was was able to overturn it. That just gives you
(21:36):
a sense of how long, even though they knew what
they wanted to do, how long it took. Now, I
think Trump two point zero, it seems like they're definitely
determined to move faster. But I think one of the
rules that you know, maybe Nathan, this is what you
were alluding to with the a rule that was finalized
but it's not effective as certainly the climate disclosure rule.
(21:57):
You know, that's a rule that's been that you know,
it basically was finalized last spring twenty twenty four. You know,
it immediately got brought up in court, the SEC kind
of put up pause on enforcing it, and and just
a few days ago the the SEC has decided to
(22:18):
extend that pause and continue to ask the court for
more time before they ultimately decide what they want to
do with that rule. You know, as Nathan noted, you know,
to actually undo or or replace that rule, it would
take at least several months, if not years to kind
of finalize a new rule, or they can just let
(22:39):
the courts kill it. And there's a lot of indication
based on who's currently looking at that case, that that
rule will be killed in court. So that's you know,
for people who ask about what's going on with the
Climate Disclosure rule and I guess, sorry, maybe I just
step back. That's the rule that required corporate filers to
(22:59):
disclose their climate risks and scope one and Scope two
emissions when material to start disclosing those, and there's financial statements.
Speaker 1 (23:08):
So Nathan, I think maybe I'll direct this to you,
but anyone else please chime in. But you know, if
you think about being the perspective of a company, for instance,
and you're you're looking at this landscape where there's potential
for enforcement changes where the new administration says, well, there's
this law, we're just not going to enforce it, rule
changes or Congress actually changing law. How how do you
(23:33):
think about that and what risk would you see for
each of those buckets if you are a company trying
to manage to this.
Speaker 4 (23:43):
Yeah, so you know, at the end of the day,
the law is the law, and the regulations are the regulations.
And so you know, if you know, if President Trump,
and we saw this with the TikTok band for example,
if the President comes out and says we're not going
to hold you to this type of standard and we're
not going to enforce the law. He can always change
(24:03):
his mind and or a president four years from now
could change their mind. And so the question is for
these companies is are you willing to take on the risk. Yes,
you're not going to have enforcers and we'll just see.
You know, if you look at the Dotch effort right now,
there's a lot of folks across a lot of federal
(24:24):
agencies that are being laid off right now.
Speaker 3 (24:26):
And if you take away the enforcers, that.
Speaker 4 (24:29):
Does help with the least the weakening of enforcement risk
for a lot of these companies. But those enforcers can
always come back, and or the state attorney generals can
always or attorneys general. Sorry I can't I can never
remember which one it is, attorney attorneys, but the state
officials can always come back as well and say, you know,
we're going to look at this and we're going to
(24:50):
hold you, or if you don't want to, for example
in California, then you can get out of the state
of California. So for a lot of these companies, they're
going to be very conservative in nature in terms of
their and you know how they approach this, because if
the regulation is still on the books, you still have
to hear to it. Somebody's not making somebody may not
be looking at you. You got to still adhere to it.
And plus also remember regulation has.
Speaker 3 (25:12):
Also other impacts.
Speaker 4 (25:13):
For example, if I'm in an industry where there's high
barriers to entry due to regulation risk, you know, a
regulation costs the industry. Let's say there's a lot of
mom and pop startups, there's a lot of small businesses.
If I'm one of the larger players and I have
the technology spend, the compliance spend, and the risk spend
in order to comply with these regulations, and those regulations
(25:34):
don't exist anymore, well then there's new entrance into the marketplace.
And so regulation has also been very effective over the
last ten years, especially in making it more costly for
new entrance into the market space. Now, that can be
a good thing or a bad thing, depending on who
you are. But you know, there's a lot of knockoff
effects that are going to be playing out over the
next year or two due to this new changing of
(25:56):
the guard, changing of the mindset. And so it's not
just going to be all positive news. There are going
to be other aspects as well. From the market perspective.
Speaker 1 (26:06):
And we haven't really touched on the role of the
courts in all of this, and I'm wondering if anyone
has thoughts there, and particularly I think maybe one of
the bigger changes in terms of the Chevron doctrine being repealed.
Speaker 5 (26:20):
Yes, so there have been some interesting developments in tax world.
I'm always of the opinion that tax is special, but
I'm biased obviously, But there was a case decided in DC,
the Liza case. It just the opinion came out in January,
and what the court said was that they will always
(26:41):
side with the government's view of a tax statute unless
the taxpayer can quote unquote defeat the government's view with
its own interpretation. So what does that mean. Well, I
think what it means is that the government still gets
the benefit of the doubt that whatever their interpretation is,
that's the one that's going to be the overriding interpretation,
(27:02):
and if you want to challenge it, fine, but you're
going to have a hard road to hoe in order
to be able to do that. The court also said
that the only way that you can sort of overcome
that difference is the best way to put it. The
only way to overcome that difference is is that if
you have an interpretation that really gets to the plain
(27:22):
meaning of the statute, then you can overcome with the government.
Speaker 3 (27:27):
Has put out there.
Speaker 5 (27:28):
But otherwise, whatever the government says, whatever Treasury says, that
is still what's going to be the major interpretation. So
not a whole lot in tax world has changed as
a result of Chevron going away. I mean officially, I
think unofficially Chevron is essentially still there.
Speaker 6 (27:46):
I guess one more thing on Chevron is things like
carbon capture storage for natural gas, which was sort of
part of part and parcel of the plan to kind
of either you know, have gas plants with capture or
don't have gas plants with capture, or don't have gas
plantes period new ones anyway past twenty thirty twenty thirty two.
That's certainly it's going to be more difficult with Chevron
(28:09):
no longer there because the you know, the economic case
for something like this is very difficult to define when
there hasn't been any commercially viable projects, right, So it's
pretty easy to get slapped down in those situations.
Speaker 1 (28:24):
And we've been talking about the US for obvious reasons.
There's been a change, and one thing I've always thought
about is where there might be kind of barriers kind
of that hold this up internationally in terms of other
countries requiring zero emission vehicles or ESG disclosure, rob Do
(28:48):
you agree with that or where might I be wrong?
Speaker 2 (28:51):
I mean, I think that's kind of the you know,
the view, the view of many industry that you know,
a lot of these regulars are, you know, whether it's
from Europe, whether it's from California. We're starting to see
more more ESG disclosure regulations out of the APAC markets
as well. You know, really that that's ultimately going to
(29:11):
force a lot of corporates to to report anyway. You
know that said, I think, yeah, the the current push
in the US towards deregulation is maybe embolded some some
folks who are in other markets that are not as
willing to go along, particularly around the European Union. There's
(29:33):
now been a lot of pushback around how how much
that regulation is is a burd into the competitiveness of
corporations there, and and now there's this big push to
simplify it. We're also seeing out of the US now
or you know, some in the Trump administration have talked
about you know, using taris, which is kind of the
(29:55):
new favorite word out there, to really kind of use
that a bargaining tool to maybe push back on requiring
US companies to comply with some of these rules. So like,
for example, the European rule was based on having a
certain number of employees in the Europe, which applies to
a lot of US multinationals, even though there were you know,
(30:16):
there are they are US based companies. Same with the
California rule, it's based on revenue and having a presence
in the state of California. So even if you know,
if you're a Delaware corporation, you might still have to
comply with the California rules. But of course, you know,
the administration has the US Administration is now actively looking
(30:37):
at kind of how to push some of the levers
to weaken those those rules that made apply uh to
other jurisdictions.
Speaker 1 (30:47):
And Rob, can you talk a little bit about what
you're seeing on the governance regulation side anything in terms
of shareholder rights engagement?
Speaker 2 (30:59):
Yeah, so that interestingly, you know, we've seen you know,
I think kind of one of the big pushbacks we've
seen from the republic Republicans written large and specifically Paul Atkins,
who's the incoming SEC chair. You know, they've really pushed
back on this whole idea of shareholder activism, proxy voting,
(31:22):
shareholder shareholder proposals. You know, we've really seen a surge
under Biden. You know, it was about a fifty percent
increase in the number of SG shareholder proposals. A lot
of that has to do with tweaks made by the
Biden SEC around what rules can and cannot be eligible
for voting by shareholders. You know, we've already seen the
(31:44):
Trump administration come in rescind those and go back to
kind of the old way of doing business. But now
there's other levers they have kind of there's a two
pronged attack. One is on the kind of shareholder proposals themselves, making.
Speaker 3 (31:56):
It harder for for.
Speaker 2 (31:58):
Folks to file these proposals, making it either so you
have to have a larger share of the company, or
you know, have to be a shaholder for a longer
period of time, or you can only filed proposal related
to certain issues that are not and pinging upon day
to day operations of the company. And then on the
flip side, really pressuring you know, a lot of the
(32:19):
passive managers that have become a kind of the dominant
force in the asset management industry today, really pushing pressure
on them to not be as active as it were
on things like engaging with companies, voting on shareholder proposals,
really be more, you know, really kind of challenging this
(32:41):
notion that you know, how can you be passive if
you're if you're taking this kind of house view that
differs from the corporation. So now kind of almost trying
to suppress the voting of a lot of these passive
index funds, which you know, make up in some cases
over twenty five percent of the votes of a certain company.
So you're really seeing a clap down on that. Ultimately
(33:04):
trying to kind of do away with ESG, the ESG
levers that have been used in recent years to kind
of push corporated gina. And we've also seen some anti
ESG proposals that well that'll probably be impacted.
Speaker 1 (33:20):
Okay, thanks a lot. I know we've covered a lot today,
but I guess I will just ask one last round.
Anything we haven't touched on or anything anyone surprised there
hasn't been news or changes coming out of DC yet
that you think we should be looking for.
Speaker 4 (33:36):
The new cycle is moving one thousand miles an hour
at the moment, and for clients that are listening right now,
the most important thing is is to try and figure
out how to get through that noise in terms of
what are these proposals and what are these ideas that
actually have a chance of going through. And there's generally
a process of how things happen in the United States.
Speaker 3 (33:56):
It's executive order, legislation or regulation.
Speaker 4 (33:59):
They both have their and cons Executive orders can move
very quickly, obviously anybody who's been watching these cycle and
knows that. But executive orders are somewhat limiting to the
executive branch, and a lot of them are symbolical nature,
meaning the executive branch has the authority to do this anyway.
Legislation doesn't happen very often, but we have this reconciliation
package that's going to happen. I think probably this summer,
(34:22):
you know, June July at the earliest, is when we
should really be so come back and talk to us.
Then we will most likely have better views on tax
policy and ra and then regulation. It's a deregulation. It
has to follow that process, and so for every statement
that comes out of President Trump's mouth, you can pretty
much bucket into one of those three things. And if
(34:42):
you follow the process, it helps you get through the noise,
helps you get through the headlines. It gives you a
better indication of how and when these things are actually
going to hit the bottom line.
Speaker 1 (34:51):
Well, thank you Nathan, rob Andy, Andrew for this. We
could probably do this daily at least in the current
state of what's happening, but we won't, and thank you
all for listening today. You can find more information on
policy developments by going to b I ESG on the
Bloomberg terminal. If you have an ESG quandary or burning
(35:11):
questions you would like to ask bi's expert analysts, please
send us an email at ESG Currents at Bloomberg dot net.
Thank you for joining us.
ESG has become established as a key business theme as
companies and investors seek to navigate the climate crisis, energy transition,
social mega trends, mounting regulatory attention and pressure from other stakeholders.
The rapidly evolving landscape has become inundated with acronyms, buzzwords,
and lingo. We aim to break these down with industry experts.
(00:30):
Welcome to ESG Currents, your guide to navigating the evolving
ESG space, one topic at a time. Brought to you
by Bloomberg Intelligence, part of Bloomberg's research department, with five
hundred analysts and strategists working across all major world markets.
Our coverage includes over two thousand equities and credits, as
well as outlooks on more than ninety industries and one
(00:51):
hundred market indices, currencies and commodities. I am Gail Glazerman,
senior ESG Integration Analyst, and I'm joined by Rob Dubof
and Andrew Stevenson, also senior analysts on the ESG team,
with a focus on governance and climate respectively. Since the
change in administration in DC, there has been a near
(01:12):
constant stream of news and policy shifts, with so much
going on, it's a challenge to keep up with all
the developments, never mind assessing the potential impact. That is
our goal today to review some of the most important
ESG developments and put them in some perspective. To accomplish this,
Rob Andy and I are joined by our colleagues Nathan Dean,
(01:32):
Senior US policy analyst, and Andrew Silverman, government and tax analyst.
Maybe just to start, Rob, one of the topics that
seems most in the forefront from the new administration is
DEI diversity, equity and inclusion. And I'm just wondering what
you are seeing in how you think companies are responding.
Speaker 2 (01:56):
Yeah, thanks, Gil, You know, I would say kind of.
There was an executive order that came within the first
day of the administration basically not only banning quote unquote
illegal DEI at the government level and across contractors, but
also kind of tasking all the agencies to work with
(02:16):
the Department of Justice to identify potential enforcement actions. So
really it's not just about government service, which it was
in the first administration. It really is impacting companies now.
Now the rub there is that the executive order called
out illegal DEI, which it doesn't really define what that
(02:39):
is that, you know, it reminds me of those drug
commercials you see where it's you know, don't take if allergic,
and obviously you shouldn't take if it's allergic, but also
how do you know if you're allergic if you've never
taken it before. So it's it's because it's so vague.
You have companies that are now just very I guess
(02:59):
tim it is the right word. You know, they don't
necessarily want to test where those boundaries are, so in effect,
we're basically seeing a rollback of the EI initiatives.
Speaker 3 (03:11):
Now.
Speaker 2 (03:11):
I think the issue is really not so much on
some of the inclusion aspects, but more around diversity and equity,
so things like quotas and some of these targets the
companies have, whether it's you know, having women or people
of color in the in represented more management, or whether
(03:33):
you're talking about suppliers diversifying the supplier base, those initiatives
are really starting to go away, you know again because
I think that maybe has a hard target, which obviously
companies like giving heard targets because it's easier to communicate,
easier for investors to follow along with, but they also
(03:54):
put a bigger target on your back. So what we're
really seeing is a lot of quieting down that front.
Speaker 1 (04:01):
Yeah, I'd say one thing I've learned is how many
large companies have government contracts that have become particularly sensitive
to how they talk about, at least their initiatives. And
to that end, do you think we're seeing tangible changes
and how much of this is really a matter of
a form of green hushing.
Speaker 2 (04:20):
I would argue, and you know, I've talked about this
before on the podcast, how a lot of these initiatives
were maybe not well thought out and they were reactionary,
you know, coming about in twenty twenty with the George
Floyd protests. I mean, they were all well intentioned, but
maybe not as well thought out, and you know, just
as irrationally, you're starting to see them pull back, you know,
(04:43):
whereas programs that are kind of more focused on, you know,
how do we grow the customer base, how do we
recruit and retain more talented employees. I think those programs
by another name will definitely stay along. But some of
the more let's call them performative metrics, you know, you
might be seeing a lot less of those.
Speaker 4 (05:03):
Yeah.
Speaker 1 (05:03):
One thing that hardens me is seeing some companies at
least try to put this more in financial context and
talk about specific things that they're doing and how it
actually helps and impacts their business exactly.
Speaker 3 (05:14):
So, one of the.
Speaker 1 (05:16):
Bigger accomplishments from the Biden administration was the Inflation and
Reduction Act, which obviously has a huge amount of implications
for the ESG space. And Andrew Silverman to start, maybe,
can you talk about how you see that evolving with
the new administration, especially in the first few weeks, anything
we should be looking at.
Speaker 3 (05:37):
Yeah. Sure.
Speaker 5 (05:38):
So the House and the Senate are still battling it
out to determine whether or not we're going to have
one bill or two bills. I think if we go
with the House's strategy, it's more likely that they're going
to be a bit more aggressive towards the Inflation Reduction Act.
If we go with it the Senate plan, it's I
(05:59):
think likely we're going to get a softer version of
an Inflation Reduction Act type repeal. The House in twenty
twenty three actually came up with a template for repealing
the Inflation Reduction Act called the Limit Safe Grow Act,
and that act rolled back several tax credits. It also
(06:24):
repealed a whole bunch of tax credits, like the nuclear
power production tax credit, the Sustainable Aviation fuel credit, clean hydrogen.
Essentially anything new that the Inflation Reduction Act put into
put into place the the Limit Safe Grow Act would
(06:44):
either turn back or repeal. But the Senate, of course,
so that bill actually passed in the House, it went
over to the Senate, but it was never picked up
at this end. Obviously the Democrats were in control of
the Senate, so so we don't know how the Senators
feel about that template. But it's really all that we
have in terms of specificity regarding how the inflation production
(07:09):
I would be dealt with by the Republicans.
Speaker 1 (07:12):
In that past, because I know late last year there
was something close to twenty Republican members of Congress that
actually came out and requested preservation of certainly some of
the provisions there. Do you think that that is still
an issue about Congress and anyone of any thoughts on
(07:35):
is Congress really the driver here or how much of
this would be within the executive brand?
Speaker 5 (07:40):
Oh, I think that. Wow, this is just my view,
but I think that the president really has very little
to do with it. I mean it's Congress's power to
tax and spend. And even though the president likes to
talk big about tax, no president has ever done major
legislation on tax by him or herself, So that's done
(08:02):
really an option. I mean, tax bills nearly always start
in the House Ways and Means Committee and then proceed
through the House and then go to the Senate. The
only slight exception to that rule is the nineteen eighty
six Tax Act, which started at Treasury and then they
(08:24):
restarted a Treasury and then it ended up in the
House of the Senate. But by the time it got
to Congress, it had become a vastly different act. So
even though Reagan was pushing it forward, it was Congress
that was really sort of leading the charge on that.
And I think in terms of, you know, how much
of the inflation Duction it gets repealed, or if it
gets parts of it get repealed at all, is about revenue.
(08:46):
How much they need in order to make Trump's Tax
Cuts and Jobs Act permanent. And if we take them
at their word and they're going to be, you know,
spending something like uh clost of three trillion dollars, then
they're going to need a fair amount of cuts in
order to pay for that that they've talked about making
(09:09):
between one and a half trillion and two trillion in cuts.
And so if if that's what they have to do,
then I think their primary target is the inflation real
chenet it then it has a different strategy than the
House in terms of how they're going to come up
with that that revenue. So, uh no, we'll have to see.
Speaker 2 (09:27):
Yeah, I think Andrew makes a good point because you know,
I've heard certainly from esg Land and Gail you kind
of alluded to it that you know, these incentives are
very popular, particularly in red states. They're bringing a lot
of jobs, and you know, I agree, in a vacuum,
they're definitely you know, they're definitely popular. They're definitely benefiting
disproportionally in the Red states. But you know, to to
(09:50):
Andrew's point, you know.
Speaker 3 (09:53):
It's not in a vacuum.
Speaker 2 (09:54):
You know, these there are other legislation, particularly that the
extension of the Trump tax cuts, and you know, when
you're kind of weighing continuation of some of these IRA
incentives versus extending the Trump tax cuts, that changes the
calculus quite a bit, right exactly.
Speaker 4 (10:11):
Yeah, you know, and I'd like to weigh in here
in just a minute as well, just because you know,
from the client perspective, what we're telling clients is that
you know, whether the House pursues one big, beautiful build
or the Senate does two bills, it really doesn't matter.
Speaker 3 (10:24):
From the market perspective, what matters.
Speaker 4 (10:27):
Is is that in order for the Republicans to advance
four and a half trillion dollars worth of text cuts,
the Inflation Reduction Act is going to be targeted as
a way to offset that.
Speaker 3 (10:36):
Now we've seen.
Speaker 4 (10:37):
It a high level and at an introductory level that
they want to go after the IRA. But like Rob
pointed out, there's a lot of popularity and know there's
a lot of cap X coming in from non US
entities into Trump states that are providing local lawmakers, you know,
ammunition in their response to Washington saying please.
Speaker 3 (10:55):
Don't touch the IRA. I have a plant being built.
But it's also important.
Speaker 4 (10:59):
So I guess I'll say this is that I don't
think the IRA is going to be overly touched.
Speaker 3 (11:04):
By the congressional aspect.
Speaker 4 (11:05):
But I also wouldn't throw out just the threat of
the IRA from Doge because you have this idea of
impoundment where you know, yes, there are tax credits, there's
also carrots. You know, there's incentives, and you know, unless
this is actually unless the funds are in your bank account,
you know, the government can always clot back.
Speaker 3 (11:24):
I like the joke. It's like any banker listening right now.
Speaker 4 (11:26):
You know, you don't quit until the bonus is in
your bank account because if you quit before you know,
you you potentially you're going to lose it, you know.
So the impowment fight is something that's going to be
trickling through Washington over the next year. Certainly important, uh
from this case. And I would also just say that
Treasury always has the ability to go back and change
the parameters of a tax cut through the rulemaking process.
(11:49):
So you know, Congress is the one that sets the
stage at one hundred thousand foot level, but Treasury and
the irs are the ones to figure it out at
the ten thousand or even the five foot level, and
they do have the ability to go back, can change
the parameters of the text cuts via the rulemaking process.
So there's a lot of changes that could could potentially come.
But optimistically, in terms of the IRA, I think more
(12:10):
of it if we were to have this discussion next year,
I think more of it still exists than not, just
because of what Rob pointed out, that popularity of the
IRA in those Trump States.
Speaker 6 (12:21):
And I'll time in here with Andy Stevenson. Induially, if
you look at what the market is expecting from some
of this, So if you see companies like Constellation Energy
is up forty four percent this year, clearly they'll think
that they're going to lose their nuclear power credits in
the next you know, year or two, given that you know,
they're not actually building any new nuclear plants or anything
(12:42):
apart from you know, possible merger that's going on. But
clearly the signal in the marketplace is that some of
these things that are have been set up, and you know,
we need the power, especially in the power sector. I mean,
the underlying current of what we need for AI is
the it more is we need more and so a
(13:02):
lot of these incentives and you know, kind of HARKing
back to what Nathan said, they're paid to play, they aren't.
They aren't there until they're available. But the some of
the economics of getting some of these projects online do
rest on these things existing. So they are pretty critical
to the investment process. We are looking for, you know,
a mead a pretty reasonable hike indie amount of power
(13:25):
demand that the US is looking for sort of a
factor of growth of five x or more relative to
the last ten years, and so a lot of the
things with related to the power sector. You're going to
need You're going to need the power, so you know,
starting with with that as a premise, and you know,
looking at what the market signals are already suggesting. I
kind of agree with both both these fellas that that
(13:47):
we are going to see more of the ira uh
hang on than not.
Speaker 1 (13:51):
We've been talking about the government for obvious reasons, but
has does anyone have an opinion about the voice of
the corporate sector and how and if they're weighing in
and how much that might matter in this resolution.
Speaker 6 (14:05):
So one test of this is Exon Mobil, who's looking
to build just a monster hydrogen plan. It's a seven
billion dollar hydrogen plant in Louisiana. They're waiting April is
when they're supposed to do their FID and whether they
go ahead or not. So clearly they are weighing whether
they should make this investment. It's a pretty the economics
(14:28):
work because of the incentives in the program. So it's
not clear that this we get built otherwise. So there
is a question of that. So I think we are
starting to I would imagine you're starting to see some
pressure coming from companies just to understand where things can
land in the next several months, because obviously there's a
lot of dollars that want to kind of invest and
(14:51):
their ability to do so will it's certainly hinging on
some of these decisions being made.
Speaker 1 (14:56):
Maybe the other enderw do you have any thoughts on
that or how that plays a sail it?
Speaker 5 (15:01):
So, so you had asked about the executive branch versus
the legislative branch on these sorts of tax reforms. If
Congress doesn't cut back in the Inflation Production Act, could
Treasury or the I R S or even the President
himself do something to cut back on these provisions. Well,
(15:24):
I think that there is a possibility and maybe even
Congress goes for this. There's this's been there's been this
concept in the past couple of years. The FIAC Foreign
Entities of Concern UH caveat that that legislators have have
been putting into bills to make it more difficult for
companies to claim the tax credits that the Inflation Reduction
(15:47):
Act would allocate to them. And what this provision says
is that if the materials well, so so the the
The electric vehicle credit is the best example of this.
And basically they said, if any part of the battery
is coming from China, Russia, Iran or the minerals that
(16:13):
go into the battery or coming from those countries, then
you don't get the benefit of the credit, right And
it's actually the provision has actually been extremely successful. It's
taken the number of models that qualified for the electric
Vehicle tax credit all the way down to sixteen. And
it's not only because these companies are now barred from
(16:36):
doing business with companies that are not just controlled by
the Chinese government or the Russian government, but companies that
have twenty five percent of their board represented by foreign government,
or even companies that US companies that are licensing technology
(16:57):
from these sorts of companies are barred from getting the
full tax credit. So I think that there's some value
in looking at the fine print, not only in the
legislation that eventually comes out from Congress, but then administratively,
can the Trump administration make it so difficult for companies
to be able to clean these credits that the money
(17:19):
is essentially just left on the table because you know,
the onus is on the companies to prove that this
limitation doesn't apply to them. It's not on the governments.
The burden isn't on the government to prove that they
don't get the credit right. So, because companies have that responsibility,
in some cases, you can't prove a negative right, So
(17:41):
they basically, I think they're hoping they're just throw in
the towel and that's the end of that, and so
they can claw back some revenue that way.
Speaker 1 (17:49):
And we've talked about executive actions like that, and we've
talked about congressional laws. Was there any unfinished business? Does
anyone have any views or anything they'd high light? Is
unfinished business from rules under the bind administration that didn't
get finalized. That would be maybe some of the easier
pickings related to ESG.
Speaker 6 (18:10):
I think, certainly on the methane front, that's certainly going
to be an issue in terms of the methane rule
that was passed during the Biden administration. It seems probably
difficult for it to continue on in its current form.
Given the fee structure and the you know, the costs
that are being asked for our participants to pay, So
(18:31):
that that's certainly one thing that could certainly be kind
of on the blocks in the next several months or years.
Speaker 3 (18:38):
And I'll say as.
Speaker 4 (18:39):
Part of the IRA, everybody loves talking about the electric
vehicle tax credit.
Speaker 6 (18:42):
I mean, that is the.
Speaker 3 (18:45):
One thing that I think people.
Speaker 4 (18:48):
The Republicans, especially when it comes from a congressional standpoint.
But you know, I would also just say that think
of think of deregulation and anything that's happened during the
Biden administration. Mean, there is real no magical wand. Essentially
somebody can wave and say go for it and deregulate
any rule that was finalized but not yet effective, which
(19:08):
there wasn't all that many. There was a little bit
in the Consumer Financial Protection Bureau, but most of them
not all that much. Any rule that was finalized but
not yet effective, they can wave that magical wand and say, yep,
the rule's not going to go on. We are seeing
efforts from the Republicans to potentially overturn some rules via
the Congressional Review Act. I haven't seen any in the
ESG space at the moment, but obviously you know we're
(19:29):
waiting for that.
Speaker 3 (19:30):
Congress does have.
Speaker 4 (19:31):
The ability within sixty legislative days, not calendar days, but
legislative days, which roughly it translates to around four to
five months. Anything that anything that was finalized after August,
the Republicans can go back and overturn via just a
simple vote in the House and the Senate.
Speaker 3 (19:49):
But I would also say when it comes to any
other types of deregulation, if you think that there's a
Biden error or even an Obama era rule that.
Speaker 4 (19:56):
The Republicans would want to potentially roll back, they have
to go through the rulemaking process.
Speaker 3 (20:01):
Again, it's called the Administrative Procedure Act.
Speaker 4 (20:03):
You have to have a proposal, you have to have
a comment period, you have to have a finalized you
have to have a cost benefit analysis.
Speaker 3 (20:08):
It takes time. The quickest I've ever seen it done
is around nine months, and that was for a very
small rule.
Speaker 4 (20:13):
And so, you know, we see this in the bank
space enough a lot, because there's a lot of sentiment
out there about deregulation. But the reality is is that
for a lot of these industries, the deregulation is not
going to hit in twenty twenty five, may not even
hit in twenty twenty six, but it'll be more likely
twenty twenty seven.
Speaker 5 (20:31):
And the Biden administration rushed as fast as it possibly
could to get a lot of the tax regulations out
before Biden left office, but there are some loose ends there.
So the Sustainable Aviation fuel Credit, the Commercial Clean view
Vehicle credit, the Clean fuel Production Credit forty five Z,
the Energy Efficient Home Improvement Credit, and the nuclear power
(20:55):
production tax credit, all of those didn't get final regulations.
And as Nathan is pointing out, if they got in
viral regulations, it's hard to then take those off the table.
But if they're just proposed, or if there's just a notice,
those can be dispensed with very easily. And so that's
just easy pickets for the Trump administration.
Speaker 2 (21:16):
Yeah, I mean, and I'll even add so on the
ESG investing front, a lot of the Trump one point
zero rules actually didn't pass till you know, November or
the fall of let's call it the fall of twenty twenty.
So a lot of those rules, you know, because it
took so long to get them done, the Biden administration
was was able to overturn it. That just gives you
(21:36):
a sense of how long, even though they knew what
they wanted to do, how long it took. Now, I
think Trump two point zero, it seems like they're definitely
determined to move faster. But I think one of the
rules that you know, maybe Nathan, this is what you
were alluding to with the a rule that was finalized
but it's not effective as certainly the climate disclosure rule.
(21:57):
You know, that's a rule that's been that you know,
it basically was finalized last spring twenty twenty four. You know,
it immediately got brought up in court, the SEC kind
of put up pause on enforcing it, and and just
a few days ago the the SEC has decided to
(22:18):
extend that pause and continue to ask the court for
more time before they ultimately decide what they want to
do with that rule. You know, as Nathan noted, you know,
to actually undo or or replace that rule, it would
take at least several months, if not years to kind
of finalize a new rule, or they can just let
(22:39):
the courts kill it. And there's a lot of indication
based on who's currently looking at that case, that that
rule will be killed in court. So that's you know,
for people who ask about what's going on with the
Climate Disclosure rule and I guess, sorry, maybe I just
step back. That's the rule that required corporate filers to
(22:59):
disclose their climate risks and scope one and Scope two
emissions when material to start disclosing those, and there's financial statements.
Speaker 1 (23:08):
So Nathan, I think maybe I'll direct this to you,
but anyone else please chime in. But you know, if
you think about being the perspective of a company, for instance,
and you're you're looking at this landscape where there's potential
for enforcement changes where the new administration says, well, there's
this law, we're just not going to enforce it, rule
changes or Congress actually changing law. How how do you
(23:33):
think about that and what risk would you see for
each of those buckets if you are a company trying
to manage to this.
Speaker 4 (23:43):
Yeah, so you know, at the end of the day,
the law is the law, and the regulations are the regulations.
And so you know, if you know, if President Trump,
and we saw this with the TikTok band for example,
if the President comes out and says we're not going
to hold you to this type of standard and we're
not going to enforce the law. He can always change
(24:03):
his mind and or a president four years from now
could change their mind. And so the question is for
these companies is are you willing to take on the risk. Yes,
you're not going to have enforcers and we'll just see.
You know, if you look at the Dotch effort right now,
there's a lot of folks across a lot of federal
(24:24):
agencies that are being laid off right now.
Speaker 3 (24:26):
And if you take away the enforcers, that.
Speaker 4 (24:29):
Does help with the least the weakening of enforcement risk
for a lot of these companies. But those enforcers can
always come back, and or the state attorney generals can
always or attorneys general. Sorry I can't I can never
remember which one it is, attorney attorneys, but the state
officials can always come back as well and say, you know,
we're going to look at this and we're going to
(24:50):
hold you, or if you don't want to, for example
in California, then you can get out of the state
of California. So for a lot of these companies, they're
going to be very conservative in nature in terms of
their and you know how they approach this, because if
the regulation is still on the books, you still have
to hear to it. Somebody's not making somebody may not
be looking at you. You got to still adhere to it.
And plus also remember regulation has.
Speaker 3 (25:12):
Also other impacts.
Speaker 4 (25:13):
For example, if I'm in an industry where there's high
barriers to entry due to regulation risk, you know, a
regulation costs the industry. Let's say there's a lot of
mom and pop startups, there's a lot of small businesses.
If I'm one of the larger players and I have
the technology spend, the compliance spend, and the risk spend
in order to comply with these regulations, and those regulations
(25:34):
don't exist anymore, well then there's new entrance into the marketplace.
And so regulation has also been very effective over the
last ten years, especially in making it more costly for
new entrance into the market space. Now, that can be
a good thing or a bad thing, depending on who
you are. But you know, there's a lot of knockoff
effects that are going to be playing out over the
next year or two due to this new changing of
(25:56):
the guard, changing of the mindset. And so it's not
just going to be all positive news. There are going
to be other aspects as well. From the market perspective.
Speaker 1 (26:06):
And we haven't really touched on the role of the
courts in all of this, and I'm wondering if anyone
has thoughts there, and particularly I think maybe one of
the bigger changes in terms of the Chevron doctrine being repealed.
Speaker 5 (26:20):
Yes, so there have been some interesting developments in tax world.
I'm always of the opinion that tax is special, but
I'm biased obviously, But there was a case decided in DC,
the Liza case. It just the opinion came out in January,
and what the court said was that they will always
(26:41):
side with the government's view of a tax statute unless
the taxpayer can quote unquote defeat the government's view with
its own interpretation. So what does that mean. Well, I
think what it means is that the government still gets
the benefit of the doubt that whatever their interpretation is,
that's the one that's going to be the overriding interpretation,
(27:02):
and if you want to challenge it, fine, but you're
going to have a hard road to hoe in order
to be able to do that. The court also said
that the only way that you can sort of overcome
that difference is the best way to put it. The
only way to overcome that difference is is that if
you have an interpretation that really gets to the plain
(27:22):
meaning of the statute, then you can overcome with the government.
Speaker 3 (27:27):
Has put out there.
Speaker 5 (27:28):
But otherwise, whatever the government says, whatever Treasury says, that
is still what's going to be the major interpretation. So
not a whole lot in tax world has changed as
a result of Chevron going away. I mean officially, I
think unofficially Chevron is essentially still there.
Speaker 6 (27:46):
I guess one more thing on Chevron is things like
carbon capture storage for natural gas, which was sort of
part of part and parcel of the plan to kind
of either you know, have gas plants with capture or
don't have gas plants with capture, or don't have gas
plantes period new ones anyway past twenty thirty twenty thirty two.
That's certainly it's going to be more difficult with Chevron
(28:09):
no longer there because the you know, the economic case
for something like this is very difficult to define when
there hasn't been any commercially viable projects, right, So it's
pretty easy to get slapped down in those situations.
Speaker 1 (28:24):
And we've been talking about the US for obvious reasons.
There's been a change, and one thing I've always thought
about is where there might be kind of barriers kind
of that hold this up internationally in terms of other
countries requiring zero emission vehicles or ESG disclosure, rob Do
(28:48):
you agree with that or where might I be wrong?
Speaker 2 (28:51):
I mean, I think that's kind of the you know,
the view, the view of many industry that you know,
a lot of these regulars are, you know, whether it's
from Europe, whether it's from California. We're starting to see
more more ESG disclosure regulations out of the APAC markets
as well. You know, really that that's ultimately going to
(29:11):
force a lot of corporates to to report anyway. You
know that said, I think, yeah, the the current push
in the US towards deregulation is maybe embolded some some
folks who are in other markets that are not as
willing to go along, particularly around the European Union. There's
(29:33):
now been a lot of pushback around how how much
that regulation is is a burd into the competitiveness of
corporations there, and and now there's this big push to
simplify it. We're also seeing out of the US now
or you know, some in the Trump administration have talked
about you know, using taris, which is kind of the
(29:55):
new favorite word out there, to really kind of use
that a bargaining tool to maybe push back on requiring
US companies to comply with some of these rules. So like,
for example, the European rule was based on having a
certain number of employees in the Europe, which applies to
a lot of US multinationals, even though there were you know,
(30:16):
there are they are US based companies. Same with the
California rule, it's based on revenue and having a presence
in the state of California. So even if you know,
if you're a Delaware corporation, you might still have to
comply with the California rules. But of course, you know,
the administration has the US Administration is now actively looking
(30:37):
at kind of how to push some of the levers
to weaken those those rules that made apply uh to
other jurisdictions.
Speaker 1 (30:47):
And Rob, can you talk a little bit about what
you're seeing on the governance regulation side anything in terms
of shareholder rights engagement?
Speaker 2 (30:59):
Yeah, so that interestingly, you know, we've seen you know,
I think kind of one of the big pushbacks we've
seen from the republic Republicans written large and specifically Paul Atkins,
who's the incoming SEC chair. You know, they've really pushed
back on this whole idea of shareholder activism, proxy voting,
(31:22):
shareholder shareholder proposals. You know, we've really seen a surge
under Biden. You know, it was about a fifty percent
increase in the number of SG shareholder proposals. A lot
of that has to do with tweaks made by the
Biden SEC around what rules can and cannot be eligible
for voting by shareholders. You know, we've already seen the
(31:44):
Trump administration come in rescind those and go back to
kind of the old way of doing business. But now
there's other levers they have kind of there's a two
pronged attack. One is on the kind of shareholder proposals themselves, making.
Speaker 3 (31:56):
It harder for for.
Speaker 2 (31:58):
Folks to file these proposals, making it either so you
have to have a larger share of the company, or
you know, have to be a shaholder for a longer
period of time, or you can only filed proposal related
to certain issues that are not and pinging upon day
to day operations of the company. And then on the
flip side, really pressuring you know, a lot of the
(32:19):
passive managers that have become a kind of the dominant
force in the asset management industry today, really pushing pressure
on them to not be as active as it were
on things like engaging with companies, voting on shareholder proposals,
really be more, you know, really kind of challenging this
(32:41):
notion that you know, how can you be passive if
you're if you're taking this kind of house view that
differs from the corporation. So now kind of almost trying
to suppress the voting of a lot of these passive
index funds, which you know, make up in some cases
over twenty five percent of the votes of a certain company.
So you're really seeing a clap down on that. Ultimately
(33:04):
trying to kind of do away with ESG, the ESG
levers that have been used in recent years to kind
of push corporated gina. And we've also seen some anti
ESG proposals that well that'll probably be impacted.
Speaker 1 (33:20):
Okay, thanks a lot. I know we've covered a lot today,
but I guess I will just ask one last round.
Anything we haven't touched on or anything anyone surprised there
hasn't been news or changes coming out of DC yet
that you think we should be looking for.
Speaker 4 (33:36):
The new cycle is moving one thousand miles an hour
at the moment, and for clients that are listening right now,
the most important thing is is to try and figure
out how to get through that noise in terms of
what are these proposals and what are these ideas that
actually have a chance of going through. And there's generally
a process of how things happen in the United States.
Speaker 3 (33:56):
It's executive order, legislation or regulation.
Speaker 4 (33:59):
They both have their and cons Executive orders can move
very quickly, obviously anybody who's been watching these cycle and
knows that. But executive orders are somewhat limiting to the
executive branch, and a lot of them are symbolical nature,
meaning the executive branch has the authority to do this anyway.
Legislation doesn't happen very often, but we have this reconciliation
package that's going to happen. I think probably this summer,
(34:22):
you know, June July at the earliest, is when we
should really be so come back and talk to us.
Then we will most likely have better views on tax
policy and ra and then regulation. It's a deregulation. It
has to follow that process, and so for every statement
that comes out of President Trump's mouth, you can pretty
much bucket into one of those three things. And if
(34:42):
you follow the process, it helps you get through the noise,
helps you get through the headlines. It gives you a
better indication of how and when these things are actually
going to hit the bottom line.
Speaker 1 (34:51):
Well, thank you Nathan, rob Andy, Andrew for this. We
could probably do this daily at least in the current
state of what's happening, but we won't, and thank you
all for listening today. You can find more information on
policy developments by going to b I ESG on the
Bloomberg terminal. If you have an ESG quandary or burning
(35:11):
questions you would like to ask bi's expert analysts, please
send us an email at ESG Currents at Bloomberg dot net.
Thank you for joining us.
Host
Eric Kane
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