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Markkula Center for Applied Ethics

The Federal Government and the Ethical Value of ESG Policy

John Pelissero

John Pelissero (@1pel) is a political scientist and senior scholar for government ethics at the Markkula Center for Applied Ethics at Santa Clara University. Views are his own.

Although environmental, social, and governance (ESG) policies are most often associated with private sector and nonprofit sector decisions related to financial instruments and investments, the public sector has both an historical and expanding role in promoting the value of ESG in its policies and decisions. Governments’ adoption and implementation of ESG is an important ethical value.

There are three primary ways in which governments may promote ESG in their jurisdictions: (1) adopting ESG goals within government operations and services; (2) implementing ESG policies and regulations; and (3) incorporating ESG factors into decisions on government assets and liabilities. In each area, governments seek to promote the public interest in its policy decisions.

In this essay, we look at the federal government and its adoption of ESG practices. In many ways, the national government has been a leader in making decisions that affirm the importance of environmental and social factors in advancing the common good of the nation. Here we highlight two sets of actions in which the federal government has advanced ESG: (1) operations and services, and (2) policy and regulation.

Government operations and services

The history of the federal government enacting laws and issuing executive orders that value ESG is quite long. The national government has been the leader in promoting environmentalism for the common good of the nation.

Consider some key points in history in which the federal government acted ethically to expand environmental operations and services. Congress created the National Forest Service in 1905 and National Parks Service in 1916 as operating bureaus of the government to manage and preserve our natural resources and vast swaths of land. In 1970, the National Environmental Policy Act was adopted and the Environmental Protection Agency (EPA) was created to coordinate most of the national government’s environmental programs.

There are many federal agencies that provide services to promote environmental practices in the public interest, such as the Department of Agriculture, Department of the Interior, and Department of Energy. Together, these federal departments and bureaus manage environmental policy and deliver services to protect the environment for the common good.

The federal government also has a lengthy and extensive footprint in advancing social values in its operations and services. The government has operational and service responsibilities for such social values as working conditions (U.S Department of Labor, Family and Medical Leave Act ), health and safety (Occupational Safety and Health and Administration), consumer protection (Consumer Product Safety Commission, Federal Trade Commission), diversity and inclusion (Equal Employment Opportunity Commission, affirmative action [see Cornell Law School, 2021]), income security (Social Security Administration, minimum wage), public health (Centers for Disease Control, Food and Drug Administration), and human rights (Office for Civil Rights, Department of Health and Human Services). In each of these areas and more, the ethical standards of fairness and justice are paramount in the actions of the federal government.

Policy and regulation

Establishing and enforcing national standards that will serve the public interest is an important ethical role of the federal government. For instance, key laws on national standards for the environment were adopted from the 1960s to the 1980s. Among these laws are the Clean Air Act (1970) and the Clean Water Act (1972) which established standards for all governments and industries to follow. Today, the range of policies and regulations that have been enacted into law or enforced through executive orders of the president are extensive and cover nearly every environmental concern that affects society (EPA, 2021).

Social policies and regulations are important to the federal government’s mission to take care of the common good of the nation. The national government establishes social policy standards for state and local governments to comply and emulate. But in more areas of social practice, the national government has enacted laws, executive orders, and regulations to compel entire industries, businesses, and organizations to meet national standards for social policy that are in the public interest.

A federal regulatory role in recent years has been the implementation of ethical standards on the use of ESG factors in investment and retirement plans. For example, during the Obama administration (2009-2017), the Department of Labor announced that ESG factors could be included in investment portfolio decisions for their benefits other than investment returns (Department of Labor, 2015). In contrast, the Trump administration (2017-2021) did not embrace ESG policies, but instead worked to end some of the Obama-era policies, such as weakening enforcement of ERISA (Employee Retirement Income Security Act) standards for investment selections.

The Biden administration (2021-) is renewing the ethical commitment of the federal government to ESG practices. For example, the Securities and Exchange Commission is planning to require greater ESG disclosure requirements for corporations (SEC, 2021). The administration is also making it easier for 401(k) plan participants and providers to incorporate ESG factors in their investment decisions (Adamczyk, 2021). Recently, the Biden Labor Department proposed that an environmental focus could be the default option in 401(k) plans, something directly opposed by the prior administration (Bernard, 2021).

Overall, through history and current operations, the federal government has generally promoted ESG in its operations, services, policies and regulations. It has done so to act for the common good not only of our nation but also for the world. Global climate change may be the existential threat to our planet. The United States has acted in ethical ways to address this through domestic policies and leadership on the world stage, including rejoining the Paris Climate Accords and recommitting to the ethical goals of caring for the planet. We should expect that ESG values will continue to be at the center of ethical practices in federal government.

 

References

Adamczyk, Alicia (2021). “The Biden Administration is making it easier to invest in sustainable funds in your 401(k).” CNBC (October 20).

Bernard, Tara Siegel (2021). “The Biden administration proposes reversing Trump-era rules on socially conscious investing.” New York Times (October 13).

Cornell Law School, Legal Information Institute (2021). “Affirmative Action.” 

Department of Labor, U.S. (2015). “New guidance on economically targeted investments in retirement plans from US Labor Department.” (October 22)

Environmental Protection Agency, U.S. (2021). “Laws and Executive Orders.” 

Securities and Exchange Commission, U.S. (2021). “SEC response to climate and ESG risks and opportunities.”  

Jan 26, 2022

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