Gridlock will test corporate sustainability promises

This week, we delve into whether companies will step up in a divided Washington on sustainability issues including climate change and social and racial inequality.

PARTISAN BICKERING PRESSURES CORPORATE AMERICA TO ACT — Most signs point to President-elect Joe Biden returning to the swamp — with partisan brinkmanship alive and well. Senate Majority Leader Mitch McConnell and other top Republicans have so far refused to recognize Biden’s victory, or weigh in on whether the Trump administration should certify the election and kick-start a transition.

Many business leaders are relieved nevertheless. A Biden administration will be more predictable, although the scope of what he can achieve depends on the Senate, where two crucial races — both in Georgia — won’t be decided until January runoffs. Plus, Democrats’ failure to make major inroads in Congress means the party’s most progressive ideas on climate change, labor rights and economic and racial inequality could be doomed

At the same time, the pressure on corporate America to tackle these sustainability issues has only intensified during the coronavirus pandemic, as the disparity between rich and poor widens, people of color continue to be disproportionately affected by the virus and by layoffs, and wildfires and storms ravage communities from Louisiana to Iowa to California.

Severe weather poses such a risk to companies’ assets that the Federal Reserve for the first time on Monday formally named climate change as a potential threat to the stability of the financial system, which follows demands from Democrats and sustainability investors that Wall Street be more accountable for its contribution to global warming.

Companies have two options in a divided Washington: to use it as an opportunity to lead, or use it as a shield to preserve business as usual. The former could pay off both financially — with emerging research showing that investment funds with environmental, social and governance standards outperformed the general market during the pandemic — and reputationally because younger Americans want to shop at and work for companies that align with their values.

It is becoming increasingly difficult for companies that aren’t prioritizing sustainability to hide, said Hugh Welsh, president and general counsel of DSM North America, a manufacturer of nutrients and speciality plastics. The company is a member of the CEO Climate Dialogue, which advocates for federal policy that puts a price on carbon and reduces greenhouse gas emissions.

“There has been a great void in the political class on addressing issues like climate change and racial and social justice that the business community has been called upon to fill over the last few years,” Welsh said.

Some have, but many have not, Welsh added. “Fear of the tweet” was real among CEOs during the Trump administration. “They were passionate about these issues, but afraid to stand out front and center,” he said.

The U.S. rejoining the Paris accord under Biden will be an invitation for the business community to be more ambitious on climate change, but it will be difficult to get major legislation through Congress. Some action is possible if there is a coordinated effort by groups including the Business Roundtable and U.S. Chamber of Commerce, Welsh said.

The Roundtable, which…