President Biden’s carbon-reduction agenda is coming into sharper focus with the release of a plan to spend more than $2 trillion on infrastructure by 2030. While much can change as Congress takes up the the tax and spending components, which include investment in roads, bridges, public housing, water and manufacturing, several climate-related proposals stand out:
These plans advance the administration’s federal government-wide approach to addressing climate change.The tax increase proposals likely will need the support of all 50 Democratic Senators and nearly all House Democrats. Moderate Democrats may seek to scale back some of the proposals and may seek to block others when Congress is expected to consider tax increase legislation later this year under “budget reconciliation” procedures. PwC’s Tax Insights analyze the corporate tax increase proposals, which include increasing the corporate tax rate from 21% to 28%, and the numerous ESG proposals in the plan.
In addition to potential legislative change, regulatory agencies will play a big part in implementing Biden’s climate goals. The Securities and Exchange Commission (SEC) has a new heightened focus on disclosures about climate change, signalling a likely shift toward more standardized climate change disclosures for public companies. Treasury secretary Janet Yellen has asked the Financial Stability Oversight Council to address the economic and financial risks of climate change.
The administration is targeting carbon pollution-free electricity by 2035 and a net zero emissions US economy by 2050. Beyond regulation, Biden is deploying other policy tools, including: executive orders, a push to integrate climate resilience into infrastructure bills, and rejoining global efforts to fight climate change. As companies pivot toward more climate-resilient business models, here’s what they need to know about ESG reporting and how climate risk and opportunities tie into business strategy.
The Covid-19 pandemic has increased the urgency to tackle connected global risks. The target goal established by the Paris Agreement to keep average global warming in this century below 1.5° Celsius (2.7° Fahrenheit), compared to pre-industrial temperatures, lowers the risk of negative impacts, although it won’t reverse climate change.
Investors and other stakeholders increasingly expect companies to disclose their plans for how their business models will be compatible with limiting global warming to the threshold agreed upon by 189 countries. Companies are facing evolving global reporting guidance for enhanced climate change disclosures. But without any US enforcement standard (yet), where do you begin?
A good starting point is the Task Force on Climate-related Financial Disclosure (TCFD) supported by more than 1,500 companies and the New York Department of Financial Services (NYDFS). The NYDFS expects all regulated organizations to use the TCFD framework in developing their approach to climate-related financial disclosures. The TCFD recommends broad analyses of climate risks, far beyond the immediate physical risks many companies prepare for, e.g. operational and business impacts from hurricanes and wildfires.
This is not just a defensive exercise; companies can seize transformational opportunities by structuring operations and strategies to better respond to climate change.
Transitioning to a low-carbon economy, or even carbon neutrality, will impact every company in a different way. Here are some examples:
Most companies, including those that support TCFD guidelines, do not have a comprehensive climate strategy. Here are five steps you can take to immediately address investor and consumer demands for climate disclosures - and be ready to meet requirements as new regulations roll out.
After a period of deregulation under the Trump administration, the regulatory pendulum is swinging toward investor and consumer protections. Stakeholder and regulatory expectations are converging around a coherent framework for ESG disclosure that gives a clear picture of companies’ long-term performance. Companies charting their ESG journey should also note the growing emphasis on the interconnectedness of ESG issues. For example, a report from the National Academies of Sciences, Engineering, and Medicine is calling upon the Biden administration to increase social spending to assist Americans hurt by the clean-energy transition. As expectations continue to increase about business’ environmental and social stewardship, rules and enforcement will revolve around not only compliance, but seek to cement change in the way companies operate and create stakeholder value.