For years, unelected regulators, foreign-owned proxy advisors, and global financial firms have colluded and used other people’s money to force businesses to address climate change and other social issues. Under the guise of Environmental, Social, and Governance (ESG), proponents have, among other things, diverted capital away from the energy sector, prioritizing political activism over prudent financial stewardship. The resulting misallocation of capital is most acutely felt in Europe, where energy prices are four times higher than in the United States.
Unfortunately, while the United States is moving back to economically based shareholder voting and investment decisions, the EU continues to push ESG through draconian regulations, such as the Corporate Sustainability Reporting Directive (CSRD). The CSRD imposes sweeping ESG mandates on companies with operations in the EU, even if they are headquartered in the United States.
That is why I, along with 24 of my fellow state financial officers, sent a letter to President Trump asking him to direct the United States Trade Representative to open an investigation into the European Union’s CSRD under Section 301 of the Trade Act of 1974. This provision allows the President to take action against foreign regulations that unfairly burden U.S. businesses.
The EU’s climate regulations are costly, prioritize political agendas over investor returns, and undermine U.S. sovereignty. Given the sweeping scope of the EU’s ESG requirements, a Section 301 investigation is fully justified.
The EU directive mandates that companies report on ESG impacts and performance, including initiatives to reduce their environmental impact. And, even though President Trump withdrew from the Paris Agreement, it requires companies, including U.S. businesses, to develop and implement a Paris-compliant transition plan for climate change mitigation.
Beyond their own operations, businesses must disclose the potential ESG impacts of companies within their supply chain, including Scope 3 emissions. In 2024, even the SEC shied away from such onerous disclosures due to high compliance costs, inconsistent and unreliable Scope 3 data, and the legal uncertainties surrounding the rule itself.
Notably, the CSRD also introduces the radical concept of “double materiality.” This means not only reporting on financially material risks, but also on speculative societal impacts. This newly invented concept goes far beyond the longstanding U.S. legal definition of materiality, creating myriad practical challenges and a legal minefield for American businesses.
The CSRD also invites frivolous lawsuits from activist groups and trial lawyers seeking to weaponize ESG disclosures. It is built on unfounded and/or unrealistic assumptions about climate change that will force companies to incriminate themselves. Traditional energy has no reliable, abundant, affordable alternatives, so, of course, companies are dependent on it for their underlying activities.
Since CSRD requirements extend European regulators’ authority to U.S. companies, these bureaucrats will dictate in-scope issues that American companies must address, including within their domestic operations. This regulatory overreach undermines U.S. sovereignty.
U.S. companies are unwinding from the coercive ESG scheme. Many of our largest financial institutions, including banks, insurance companies, and asset managers, have pulled out of the collusive global net-zero alliances. And ESG shareholder proposals are receiving decreased investor support. The EU, in contrast, seems determined to carry on the deleterious ESG cabal despite the demonstrably detrimental impacts that have resulted.
The recent American Airlines retirement plan litigation highlights the risks of prioritizing non-pecuniary interests in investment decisions. Judge Reed O’Connor noted that ESG investments often underperform traditional ones by about 10% and stated that it is irrational for shareholders or investment managers to push companies like ExxonMobil to act in ways that undermine their own profits.
The EU’s ESG policies have already crippled European economies, driving energy shortages and economic stagnation. The CSRD will exacerbate capital misallocation and weaken the economies of both Europe and the United States. This promises to not only harm the financial interests of states, but also drain financial resources from shareholders.
Even within Europe, the CSRD is controversial. President Macron of France has asked the EU to postpone their implementation indefinitely. As Brussels re-examines the CSRD, the United States has an opening to assert its opposition.
President Trump’s administration has taken critical initial steps to free American markets from the grip of ESG mandates. We must extend that fight to the international stage. By taking a firm stance now, the United States can protect American businesses and shareholders, restore market principles, and encourage Europe to rethink its self-destructive policies.
We must act swiftly to ensure that Europe’s regulatory failures do not become America’s burdens.
Marlo Oaks is the State Treasurer of Utah.
