Reframe and Refocus: The Impact of Executive Orders on ESG
May 16, 2025
Publications
After years of building momentum, ESG efforts are now facing increasing scrutiny amid a shifting political landscape. Early in his second term, President Donald Trump’s administration rolled back several key policies, calling into question the future of ESG-related initiatives and investments across all three pillars: environmental, social, and governance.
Executive Orders Targeting ESG
The “Protecting American Energy from State Overreach” executive order, issued on April 8, 2025, states that American energy dominance is threatened when state and local governments seek to regulate energy beyond their constitutional or statutory authorities. This order looks to reduce the regulatory authority of state and local governments over various energy sources.
In addition to withdrawing, again, from the Paris Accord, the administration has also revoked billions of dollars in clean energy and transportation funding, rolled back environmental regulations, and taken aim at the Inflation Reduction Act (IRA) and diversity, equity and inclusion initiatives.
Social and Governance Policies Under Fire
In the realm of social issues, the “Ending Illegal Discrimination and Restoring Merit-Based Opportunity“ executive order, issued on Jan. 21, 2025, terminated the “diversity, equity, and inclusion” (DEI) or “diversity, equity, inclusion, and accessibility” (DEIA) policies in the federal government. It also encourages private sector companies to eliminate similar programs. With regard to governance, the same executive order focuses on how private-sector businesses should administer policies and programs.
ESG as Risk Management and Profitability
Even with the administration’s approach to these policies, many investors and companies continue to work within ESG frameworks, recognizing that ESG is increasingly viewed through the lens of risk management, strategic opportunity and profitability. For example, investors continue to demand increased transparency and reporting to evaluate risks related to climate change, environmental issues, geopolitical uncertainty, trade wars and other global risk factors.
SEC Limitations on Shareholder Influence
However, these demands, and the ability to compel corporations to respond, have already been significantly diluted by new SEC policies. These policies allow companies to push back on shareholder resolutions. While such resolutions have typically been used to alert companies to the issues most important to shareholders, the SEC has narrowed the scope of permissible resolutions, specifically limiting those that focus on ESG issues.
These restrictions could severely limit investors’ ability to influence corporate governance and potentially undermine the role of shareholders in holding companies accountable for ESG-related risks.
The Courts as a New Arena for ESG
Ultimately, these rollbacks may drive more and more investors to turn to the courts to litigate questions of fiduciary duty in an attempt to hold corporations and their directors accountable. What that will look like in practice is uncertain. However, organizations should not completely abandon their transparency and reporting practices simply because they are no longer federally mandated.
Robust data collection and retention will continue to be crucial for organizations looking to navigate and manage rapidly changing compliance requirements. Additionally, there will likely be increased litigation as states seek to defend their own ESG-focused policies against federal policies aimed at limiting states’ authority to enforce such policies (or even to punish those states that support them). On the flip side, other states where such initiatives are disfavored will see increased litigation seeking to unwind ESG policies that have been enacted in the past.
This patchwork of legal challenges could create significant uncertainty for organizations operating across multiple jurisdictions, leaving many in limbo as these issues wind their way through the courts.
Global Pressures and International Standards
Although there may be an initial cooling on ESG initiatives due to uncertainty created by the whirlwind of policy changes, globally, the current administration’s disdain for ESG policies is unlikely to hinder ESG investments in Europe, Asia, and other parts of the world where the business rationale for such policies remains a strong focus.
As companies increasingly operate at a global scale, the transparency, data collection, and reporting requirements from governing organizations abroad remain in effect.
Corporations and investors with international interests will face unique challenges in balancing policy changes and rollbacks in the United States with international standards.
These parties may need to consider rebranding or repositioning their domestic ESG efforts, ensuring they are framed around economic returns, competitiveness, and risk mitigation rather than social objectives alone.
Looking Ahead: The Economics of ESG
ESG-focused investment funds currently encompass over $40 trillion in assets—a figure that continues to grow. There is a growing concern that the dissolution of such ESG efforts in the United States could present a competitive opening for other nations to lead in global sustainable finance. In particular, green-finance and renewable energy investments continue to grow in China, which may prove to be a natural successor to the United States to lead the charge into a low-carbon future.
While ESG proponents know that risk, opportunity, and profitability have always been part of any comprehensive ESG framework, the future of such policies may be a matter of shifting the dialogue to focus on the economics of ESG rather than the “soft” factors that have dominated the public narrative to date.
Reframing and refocusing these policies to ensure that the focus is on tangible, data-driven outcomes will be crucial for organizations looking to balance their varying obligations and compliance requirements in an increasingly changing legal environment.
