With the new White House administration appearing to prioritize rolling back environmental and social regulations for US companies over the next four years, where does that leave our two perennial mega themes: climate and diversity?
Let’s look at some watershed events in 2024 and what the evolving political environment in 2025 might mean for investors who seek to incorporate financially material environmental and social risks into their investments.
Climate regulation faces headwinds
In March 2024, after more than two years of deliberation, the Securities and Exchange Commission (SEC) approved a watered-down climate disclosure rule1 that removed the controversial Scope 3 emissions2 disclosure requirements it had initially sought from companies. As expected, the SEC was sued within hours of the approval. A month later, energy companies and business groups, along with 25 Republican-led states, filed lawsuits challenging the SEC's authority to mandate climate-related risk reporting. The lawsuits were consolidated, and the SEC announced it would indefinitely pause implementation of the rule pending judicial review.
Meanwhile, in September 2024, California governor Gavin Newsom signed into law three bills requiring companies with significant revenues in the state to publicly disclose greenhouse gas (GHG) emissions (including Scope 3) and climate-related financial risks. A federal court ruling in November 2024 left the state’s climate-related disclosure laws in place while the constitutionality of these bills is being challenged in the courts. Litigation is expected to take months to resolve, possibly extending into 2026, when companies need to start complying with the California laws.
What’s next in 2025? Incoming SEC chair Paul Atkins has publicly opposed the climate-related disclosure rule, arguing it goes beyond the SEC’s authority and fails to adhere to the concepts of financial materiality. Without his support, we don’t expect the SEC rule to be implemented in the next four years. We do believe, however, that the California laws could pave the way for a more robust disclosure framework for many US companies.
Diversity efforts continue, but quietly
Following the US Supreme Court’s July 2023 ruling against the use of affirmative action in the college admissions process, diversity programs have faced some strong challenges in US courts. The same plaintiff group in the college admissions ruling sued the Fearless Fund, a venture capital firm that invests in female entrepreneurs of color. Recognizing that Black-owned businesses receive less than 1% of venture capital funding, the firm designed its Fearless Strivers Grant Contest to help Black women secure capital for their businesses. The Fearless Fund settled the discrimination lawsuit and ended its grant program in September 2024.
Nasdaq sought to require companies listing on its exchange to publicly disclose a board matrix and provide reasons why they didn’t have at least one diverse director by 2023 and another by 2025 or 2026. Nasdaq’s diversity disclosure effort also suffered an important legal setback in December 2024, when an appeals court in Louisiana ruled that the SEC didn’t have the authority to approve the rules.
What’s next in 2025? While court cases have successfully challenged diversity programs and disclosure efforts, investors don’t appear to be retreating from their diversity initiatives. They may be less likely to publicly tout their shareholder engagement efforts to encourage diverse senior leadership than in the past.
Meet financial and responsible investing goals
The bottom line
Last year, we predicted that incorporating financially material environmental or social metrics would become a more sensitive endeavor for investors in 2024. We were spot on about that. Now we expect the prevailing winds in US politics will make incorporating environmental or social risks into the investment process even more precarious in 2025—no matter how financially material these risks are.
1 The SEC climate disclosure rule would require publicly traded companies to disclose detailed information about their climate-related risks—including greenhouse gas emissions, the impact of severe weather events and how their board manages climate risks—in their annual reports and registration statements.
2 Scope 3 emissions are indirect emissions that occur in the value chain of a company, including both upstream and downstream emissions. Scope 3 emissions aren’t directly produced by the company, which would fall under Scope 1, but result from its supply chains and activities such as the production of goods and services, transportation, waste disposal and product use. Scope 3 is often the largest emissions category and the most challenging for a company to measure and manage.
The views expressed in these posts are those of the authors and are current only through the date stated. These views are subject to change at any time based upon market or other conditions, and Parametric and its affiliates disclaim any responsibility to update such views. These views may not be relied upon as investment advice and, because investment decisions for Parametric are based on many factors, may not be relied upon as an indication of trading intent on behalf of any Parametric strategy. The discussion herein is general in nature and is provided for informational purposes only. There is no guarantee as to its accuracy or completeness. Past performance is no guarantee of future results. All investments are subject to the risk of loss. Prospective investors should consult with a tax or legal advisor before making any investment decision. Please refer to the Disclosure page on our website for important information about investments and risks.
02.10.2026 | RO 4203646
