The United States is at Risk of Marginalizing Itself on Sustainability

This is the first of a two-part series on how developments in the United States are marginalizing the American leadership globally and creating unnecessary barriers to the achievement of a more just and sustainable global economy. Read the second blog here.

Over the first quarter of 2024, it is clear that the United States is at risk of marginalizing itself and its influence over the direction of the global economy, the urgent challenge of the energy transition, and the competitiveness of American enterprise. This presents an unnecessary risk not only to our collective well-being, but also to the effectiveness of American leadership.

While the Biden Administration and states like California and New York have continued to raise ambition and make smart public investments, several crosswinds threaten to interfere with the trajectory and consistency of these significant federal government actions.

America’s federal system is at the core of the issue. First, as is well known by now, many states and cities have pushed back—vigorously—on the rise of “ESG,” taking aim not only at the terminology, but also on the very concept that investors and businesses should consider the impact of topics like climate or DEI, even when they are plainly relevant to their businesses. The pushback of a loose coalition of state attorneys general has resulted in legal and political challenges to action on climate and diversity in particular. This so-called backlash has begun to have an impact not only on what companies say, but also what they do.

Second, the uber-litigious nature of American political culture means that rules like the SEC’s recent climate disclosure rule, as well as California’s rules, are being challenged in the courts, which could change or delay implementation. Indeed, the SEC’s climate disclosure rule was delayed and watered down in anticipation of significant legal challenge, and has now been paused by the SEC itself due to legal challenges. The end result is uncertainty, delay, and misalignment of US rules with the rest of the world. 

Finally, and has been the case for nearly a decade, the continued presence of Donald Trump on the American political scene, enabled by a fractured media environment in which some outlets traffic in mis- and disinformation, is also having an effect. Project 2025, considered the stalking horse for a second Trump presidency’s policy initiatives, takes direct aim at sustainable business and investing through multiple means, from politicizing the civil service to reversing many Biden administration regulations, and pension funds’ right to consider ESG factors. (The Inflation Reduction Act, however, which is enshrined in law, would likely be spared).

All this threatens to put the United States out of step with the direction of travel in most of the rest of the world, not least its usual allies and partners. Trade, global cooperation, consistent global rules, and political stability are all at risk. 

• Trade: During my recent visit to Singapore and Japan, the focus on a trade-based agenda stood in sharp contrast to the focus on domestic manufacturing in the US, and protectionist sentiments that are, for example, putting Nippon Steel’s acquisition of US Steel at risk. The feeling in much of Asia is that the US has abandoned the open trading system that has generated rising living standards across Asia, ever since it disavowed the Trans-Pacific Partnership in 2016. This is not to say that there are not legitimate reasons why the US has soured on the Washington Consensus, despite its provenance. But the fact that is too often lost on Americans is that the world is ready, willing, and able to get on with the trade agenda, whether or not the US is an eager participant, let alone a leader, and certainly diminishes its role as a central actor on the world stage. Even more, a Trump return to power, especially if it is accompanied by major tariffs, would not only see the US pull back further from open trade, it also would threaten to create a massive disruption and possible trade war. This is deeply concerning to most of the world. All is not lost, however, as witnessed by the announcement this month of a Climate and Trade Task Force by the Biden Administration. 

• Global cooperation: The growing strains of isolation in the US may undermine the US role in negotiating international agreements well beyond trade, including on climate, nature and human rights. There is little doubt that a second Trump term would again turn the US away from multilateralism, this time potentially with even greater impacts. Given the immense significance of COP30 in 2025, where the next round of national climate commitments are due, progress will be hindered by a lack of American engagement. If the world’s largest economy is not working to build international cooperation, the world will find other ways to muddle forward, with the US lamentably lagging behind, forfeiting its leadership status.

• Consistent sustainability regulations: Every business is counting on the slow but steady march towards more harmonized sustainability regulations, with reporting and disclosure being especially important. As we noted in our commentary on the SEC rule released last month, the US now looks out of step with an otherwise growing global consensus. The reasons are understandable, and linked to the backlash and federal system noted above. The unfortunate result, however, is inconsistency that hinders a smoothly running financial system. The US is now playing catch up—most global companies will end up following the rules being adopted in most other markets—and losing the ability to shape how markets operate.

• Emboldening populists: The last point is more about the direction of global politics. The US risks reinforcing the drive towards a populist nationalism that fosters protectionist economics and xenophobic, authoritarian politics. The US is at risk of landing on the side of those who wish to build walls when cooperation is needed; who turn their eyes away from the climate crisis instead of embracing an ambitious national project to fight it, and build the American economy of the future, and who promote raw power politics instead of respect for rule of law and transparency, which history tells us is necessary for genuine and shared human progress. This is an historic shift away from the US’s posture for most of the 80 years since the end of World War II. 

This is of obvious and crucial importance to the entire world. But what is equally true is that this is also of central importance to the well-being, position, and prosperity of the United States and its citizens.

Business wants to make sure the system of global trade continues, for obvious reasons. Business can make the case, but currently it is seen as a flawed messenger by much of the American public. It can make the case for an American public that has lost faith that US leadership globally is worthwhile. The path forward? Business can be effective, though only if it fully embraces a version of global trade that rests on decisive action on climate and nature, respect for all peoples, and rule of law and human rights. 

We will turn our attention to how business can and should respond in our next installment.