COP26 is over: what does it mean for business in the US?

Much of the world’s attention has been riveted by the events at the recently completed COP26, which has so far resulted in a number of major announcements, including those regarding methane emissions and deforestation pledges. While it was hoped by many that the United States would seize the global spotlight to lead on climate change initiatives, it appeared to fall short of activists’ expectations – for example, by pointedly staying out of multilateral initiatives to phase out coal.

The November 10, 2021 announcement of the U.S.-China Joint Glasgow Declaration on Enhancing Climate Action in the 2020s was therefore welcome news. The declaration, while short on details, nevertheless signals the commitment of the two world powers to work collaboratively to address topics such as: regulatory frameworks and environmental standards related to reducing emissions of greenhouse gases in the 2020s; maximizing the societal benefits of the clean energy transition; establishing policies to encourage decarbonization and electrification of end-use sectors; the circular economy, such as green design and renewable resource utilization; deployment and application of technology such as CCUS and direct air capture; and increased action to control and reduce methane emissions.

Separately from COP26, the United States has taken a number of steps domestically to address climate change, including:

• Infrastructure legislation – As COP26 was happening, the US Congress passed a $1.2 trillion infrastructure bill, which among other things will invest $66 billion in sustainable transportation options, $7.5 billion to build-out the first-ever national network of EV chargers, and $50 billion to protect against droughts, heat and floods.
• Climate change report – The Financial Stability Oversight Council issued a report that for the first time identifies climate change as an emerging and increasing threat to US financial stability.
• Public company disclosure – The SEC has been particularly active on climate and ESG, continuing to work on a climate change disclosure proposal that is expected to be released in early 2022. In the meantime, the SEC has issued a “sample letter” to public companies making it clear that the SEC staff will be reviewing disclosure with an eye toward whether companies are complying with the SEC’s 2010 climate change disclosure guidance.
• Shareholder voting – The SEC has also changed its approach towards shareholder proposals to make it significantly easier for shareholders to get ESG proposals on the company’s proxy statement. It also proposed rules that would require more disclosure by certain funds regarding their proxy votes. Among other things, the proposed rules would require funds to categorize each voting matter by type – such as environment or climate; human rights or human capital / workforce; diversity, equity and inclusion; and political activities – to help investors identify votes of interest and compare voting records.
• Greenwashing enforcement action – The SEC and federal prosecutors are reportedly investigating various market participants, including asset managers and listed companies, due to allegedly overzealous claims regarding their sustainability credentials.
• ESG investing – The DOL has released a proposal that would reverse rules adopted during the Trump administration that would have required fiduciaries to select investments and investment courses of action based solely on consideration of “pecuniary" (i.e. financial) factors, which was widely seen as a bar to ESG investing by pension funds.

As evidenced by these initiatives, the US federal government and related agencies continue to chart their own path in respect of a variety of climate-related topics, from spending to disclosure rules and enforcement. However, at least for the near term, the impetus for change in the US will continue to be driven in large part by the private sector and, in particular the US-based global asset management firms, financial institutions and companies that have made, and continue to make, bold commitments to help the world achieve the aims of a ‘just transition’. Much like the debate about greenwashing, time will tell whether these pronouncements, many of which have been redoubled in the wake of COP26, will amount to more than just words.

For our full coverage of COP26, including what it means for business in the EU, UK, Germany and Asia, see our COP26 microsite.