Federal Loan, Grant Recipients Should Expect ESG Mandates

Government and regulatory affairs partner Christopher Berendt, senior counsel Jim Spaanstra and counsel Douglas Benevento wrote an article for Law360 assessing the possibility of environmental, social and governance (ESG) requirements for federal loan and grant recipients.

The authors describe how the U.S. Securities and Exchange Commission (SEC) recently closed public comment on 15 questions it posed, asking if the SEC should require more disclosure by publicly traded companies on ESG matters. They also highlight reintroduced legislation in Congress that would require the SEC to mandate additional disclosure of the impact of climate change on companies — and whether and how affected companies are managing that risk.

The authors further detail the recently issued Executive Order (EO) 14030, requiring an assessment by federal agencies of climate-related financial risks faced by the federal government. They believe that the Biden administration could require ESG materiality assessments that identify the nonfinancial risks faced by organizations that borrow or receive certain grants, loans or contracts from the federal government.

Additionally, the authors discuss potential implications for stakeholders. For example, if businesses with ESG practices perform better than peers without such practices, the federal government may start requesting and considering that applicants for loans and grants adopt or, at a minimum, disclose their ESG practices.

In conclusion, the authors ask, “Will the next step be an application of ESG investing principles to the federal government? And if the feds don’t act, will states instead take the lead?”

The full article is available for Law360 subscribers.