During his first term, President Trump鈥檚 administration was marked by significant policy shifts, deregulation, and a distinctive approach to international relations and domestic governance. Yet, as he embarks on his second term, questions swirl as to what policy proposals will remain rhetoric and which will come to fruition.

Planning for the future requires an assumption that Trump will be able to achieve several of his policy objectives in the first year or two of his presidency. Yet, governance and events on a geopolitical framework take time, and it may be wise for companies also to take a longer-term view of three or more years.

The impact on firm business

President Trump’s second term is expected to pivot heavily towards deregulation, impacting various sectors from energy to finance. His administration plans to roll back green regulations that currently limit oil & gas drilling and coal mining, potentially boosting traditional energy sectors while curtailing government investment in renewable energy. Additionally, Trump has expressed his intent to rescind unspent funds from the Inflation Reduction Act, a significant climate law, which could hinder growth in industries involved in electric vehicles, solar power, and wind energy.

Further, Trump’s aim to , a noted cryptocurrency proponent, as chair of the U.S. Securities and Exchange Commission could indicate a change in regulation of that industry. (Indeed, Trump鈥檚 announcement of Atkins lifted Bitcoin to $100,000 for the first time in its history.) However, the change at the top of the regulatory agency also may undermine the influence of sustainable funds, further weakening the momentum behind environmental, social & governance (ESG) investing.

Legal demand

Shifts in regulation would likely drive law firm demand. Given the highly political nature of some of these aims and the precedent of the first Trump administration, legal challenges to these changing regulations are likely. Furthermore, curbing the power of regulatory agencies set the stage for an additional surge in litigation demand.

Corporate demand, on the other hand, is likely to push an even larger boost in demand for legal work. Corporate profit performance correlates with demand for legal services, likely as a result of the increased investment, spending, and dealmaking that companies which are flush with cash tend to make. If the Trump promise to significantly lower corporate tax rates further comes to fruition, companies would be expected to see a substantial boost in profits.

As Trump embarks on his second term, questions swirl as to what policy proposals will remain rhetoric and which will come to fruition.

However, overseas operations are likely to face significant challenges. The European Union, and especially member countries like Germany, could experience economic downturns as a result of potential trade initiatives the Trump administration has favored. This could pose substantial threats to the transactional demand for top law firms鈥� international offices.

While trade wars generally have adverse effects on business, regardless of the outcome for governments involved, law firms on the other hand may see a temporary increase in demand in 2025. This could be due to companies’ reactions to new trade policies 鈥� such as relocating operations, selling assets, or engaging in litigation. In the long term, however, such conflicts have traditionally dampened growth rather than promoted it.

Tariffs & expenses

The kind of tariffs that have been talked about by Donald Trump on the campaign trail would represent a significant shift in US economic policy, with potentially far-reaching implications. While the intention behind tariffs is to bolster domestic manufacturing, the reality is that American manufacturing currently lacks the capacity to substitute for its needed imports at a comparable cost or scale. If US corporations could do such, there would be no need for tariffs.

This apparent strategic mismatch creates a scenario in which businesses that are reliant on imported goods are forced to either absorb the increased costs or more likely pass those costs on to consumers.

With US consumers currently hyper-vigilant about even a hint of price inflation, even a modest increase in prices has the potential to ripple through the economy, exacerbating inflation in sectors that are particularly sensitive to cost changes, such as food, energy, and consumer goods. As a result, law firms could be looking at another significant expansion of their expense profiles over the coming years.

Billing rates & inflation

Yet, for law firms, inflation does have some advantages. Because of the post-pandemic inflation surge, many firms have actively incorporated inflation into their rate-setting procedures, meaning their prices will automatically rise in accordance. And recent history has shown that clients have offered relatively little pushback to such inflation-led rate increases. If this continues, it is likely to provide a solid cushion for firms in a renewed inflationary environment, especially if their own expenses are increasing.

The impact of global events on law firms

While short-term factors are crucial for understanding law firms鈥� near-term landscape, it is equally important to consider prospects a few years into the future and beyond. While the current fluctuating landscape paints a picture of a market that is reactive and adaptable in the short term, the broader horizon reveals deeper challenges and uncertainties that could shape the legal industry for years.

Historically, large law firms have managed both prosperous and challenging times, often identifying opportunities during periods of increased risk. In such situations, law firms frequently rely on counter-cyclical practices, including bankruptcy, litigation, and labor & employment, which tend to perform well during economic downturns.

Historically, large law firms have managed both prosperous and challenging times, often identifying opportunities during periods of increased risk.

However, extreme global instability can pose long-term threats to transactional demand, as we saw last during the aftermath of the global financial crisis (GFC), which saw law firms鈥� transactional practices struggle to rebuild for the better part of a decade afterwards. To illustrate, if a law firm worked 100 hours in 2007, they typically only reached that same level of 100 hours worked annually by 2019. Yet, at that time, counter-cyclical demand did not ride to firms rescue, as rather than surging to counter the decline of transactional demand, counter-cyclical demand merely held on to its pre-GFC levels, slowly declining over the following decade instead. Overall legal demand for firms only recovered in 2023, more than 15 years later.

Thus, law firms cannot assume that legal demand will be a perennial driver of profits should the geopolitical environment settle into a pattern of instability. While the Trump administration has repeatedly stated a desire to end America鈥檚 overseas armed conflicts, there are still ongoing conflicts with which to contend. Given that, there is a risk that significant conflict or protracted trade wars could negatively affect law firm profits for an indefinite period.

Overall, the shaking up of the domestic and international snow globe by the Trump administration is likely to increase legal demand in the short term as clients adjust to ongoing changes, the long-term implications are decidedly more uncertain.

You can find out more about the challenges law firms are currently facing here.

President-Elect Donald Trump, a strong proponent of increasing fossil fuel production, will almost certainly pull the United States, once again, out of the Paris Climate Accords. His election has already cast a pall over听, the annual United Nations climate summit, in Baku, Azerbaijan. As of press time, countries at the summit were struggling to secure a climate finance deal that would support poorer countries in combating climate change.

“Overall, the outcome of the US election win is a dangerous moment for climate action because of its chilling effect on federal, global, and corporate action,鈥� says Dr. Andrew Coburn, CEO of Risilience, a UK-based sustainability intelligence firm. 鈥淗owever, the world looks very different from 2016, and there are nuances that will soften the impact.”

For example, there will be less regulatory pressure for US companies to show action toward their climate goals, but for large corporations 鈥� both multinational and domestic 鈥� regulation from the European Union and the State of California will 鈥渕ean they still have to engage in stringent climate disclosures,鈥� Coburn adds.

Increased executive orders on oil, environmental protection, diversity

Many experts have said they believe one way that Trump will act quickly on environmental, social and other policy objectives is by issuing executive orders. The use of such orders is a strategy that many US presidents have used early in their term, offering them an easy way to bypass Congressional negotiations and legislation.

Peter Alpert, partner at the law firm Ropes & Gray in New York City, recently joined colleagues in a roundtable discussion about the outlook for ESG policies under a second Trump administration. “Substantively, I think that you’d see executive orders on the topic of extraction of fossil fuels 鈥� ‘drill, baby, drill’ type of executive orders,鈥� says Alpert, adding that there may also be a directive that could impact the U.S. Environmental Protection Agency (EPA).

Trump’s nominee to lead the EPA is Lee Zeldin, a former member of Congress. Zeldin, who ran for New York State governor two years ago, is a lawyer with little climate or environmental experience. In听, Zeldin said publicly that he would prioritize “unleashing economic prosperity through the EPA” and pursue “energy dominance,” a phrase used to refer to developing more oil and gas.

You can hear more about in the latest 成人VR视频 Institute Insights podcast on Spotify.

Regarding diversity, equity, and inclusion (DEI), observers expect the new administration to issue executive orders quickly. Doug Brayley, of Ropes & Gray, said he expects “executive orders over the topics that the executive has the most direct control over, and that’s namely the staffing of the federal government, which, of course, employs millions and millions of Americans in civilian capacities and also [manages] federal contractor compliance.”

Brayley cited听, produced by the Heritage Foundation, an American conservative activist group, that is said to be an explicit blueprint for the new Trump administration. “We’ve seen in Project 2025 [that] there’s a plan to purge the federal bureaucracy of a number of senior civil servants,鈥� Brayley explains. 鈥淥ne, I think, can reasonably expect senior DEI officials at the various agencies to be included.鈥�

Little hope of resurrecting SEC climate rule

Trump has yet to nominate a new chair for the U.S. Securities and Exchange Commission; however, whomever he chooses will almost certainly eliminate or severely truncate the climate disclosure rules put forward by current SEC Chair Gary Gensler. Gensler has said publicly that he would step down from his role in January when Trump takes over.

The climate disclosure regulation, sharply criticized and challenged in court, is now languishing in the U.S. Court of Appeals for the Eighth Circuit after the SEC put a stay on the rules.

In an听听under the Trump administration, consulting firm PwC stated: “The SEC’s climate risk disclosures are not likely to go into effect during the new Trump Administration, as they are already facing a difficult legal battle that a new chair could choose not to fight.”

On the state level, the California legislature formally declined to delay the sustainability reporting regulations contained in its in August, and the law remains in effect even while being challenged in court. The law, previously signed by California Gov. Gavin Newsom, means that both public and private companies that meet certain revenue听thresholds and “do business” in California should prepare to report information on their greenhouse gas emissions as soon as 2026. Other states, such as New York and Illinois, may follow California’s lead on climate disclosure.

More action on “greenhushing”

In 2023, the SEC adopted a new听rule听cracking down on greenwashing and other deceptive or misleading marketing practices by US investment funds.听The changes to the two-decade-old SEC require that 80% of a fund’s portfolio matches the assets advertised by its听name.听The regulation targets a boom in funds that have tried to exploit investor interest in ESG investing, with听names听that do not accurately reflect the fund’s investments or strategies.

Should a new SEC take on more of an anti-ESG sentiment, such as that seen in some Republican-led US states, experts suggest there could be more investigations into funds that seek to downplay their ESG-related investments 鈥� what is often referred to as greenhushing 鈥� in an effort to avoid riling anti-ESG politicians or lawmakers.

This might be particularly difficult for fund managers operating in both the EU and the US, notes George Raine of Ropes & Gray. “If you’re a manager who is managing the same strategy, say, in Europe, and you’re out there saying, 鈥楬ey, this is an ESG strategy,鈥� and you fail to mention that in your US version of the same strategy, you would then potentially be violating a rule that says you must go out and say you are an ESG impact fund or an ESG-focused fund,” Raine explains.

US corporations will continue ESG efforts

Despite the gloomy prognostications at the federal level, some experts said they believe that many US companies will continue pursuing ESG policies and strategies 鈥� if for no other reason than they see it as a good, long-term business practice.

“Companies committed to sustainability will stay the course ,” said Tim Mohin, global sustainability leader at consulting firm BCG. 鈥淚nvestors will seek value by avoiding risks and betting on new, efficient green tech. Climate advocates will redouble their work, and the public will increasingly expect action from their elected representatives as climate risks mount.鈥�

Mohin says that while US leadership of climate and sustainability action will undoubtedly reverse, 鈥渢he future of the global sustainability movement will continue.鈥�

You can find more about the impact of the recent Presidential Election here.

While few things are certain in predicting the path of future regulation, the leadership at the U.S. Federal Reserve is expected to remain in place 鈥� for now. However, new regulators are expected to lead the Office of the Comptroller of the Currency (OCC), the Federal Deposit Insurance Corporation (FDIC) and the Consumer Financial Protection Bureau (CFPB). Let鈥檚 look at the impact on each of these agencies in turn.

Federal Reserve: What happens with Basel Endgame

The Fed is focused on , which involves capital increases for the largest US banks. Despite Fed vice chair Michael Barr’s high-level overview to address concerns, a final plan is still pending. As a final proposal will need to be endorsed by the OCC and FDIC, others shared skepticism over the plan’s future and how it might be watered down even further.

“The Basel endgame rule could be completely dead,” Gene听Ludwig, a former top听bank听regulator who advises financial institutions as CEO of听Ludwig听Advisors.

A from consulting firm PwC, said new regulatory leaders will likely impact the fate of the rule. “New agency leaders will also be able to modify or table rulemaking that has not been finalized before they take over, such as Basel III Endgame, which had a planned re-proposal that has not yet been issued and will likely go back to the drawing board for further relief.”

The one certainty is that Fed chair Jerome Powell would fight any attempt to remove him before his term ends in 2026. When asked right after the election whether he would step aside if President-elect Trump asked him to resign, Powell simply said: “No.”

OCC: Crypto assets & fintech bank review

During his campaign, Trump has highlighted the merits of crypto assets, even promoting a new venture set up by some of his longtime business partners and backed by his sons. Not surprisingly, the crypto industry has hailed Trump’s election as a win for digital currencies. Industry executives anticipate a shift in policy and the attitudes of US regulators, following a Democratic administration that was seen as more hostile to the alternative assets.

Michael Hsu, the acting head of the OCC, is expected to step down, and among those being considered for the short list of top bank regulators is Michelle Bowman, a Fed governor and former community banker who has criticized capital hikes led by her colleague Barr and made the case for easing bank rules and supervision. “The first reaction of regulators to proposed innovation in the banking system is often not one of openness and acceptance, but rather suspicion and concern,鈥� Bowman said in a . 鈥淭he use of emerging technology and innovation may require a change in policy or supervisory approach.”

Whether a new OCC regime will revisit the special charters first floated by the OCC under the first Trump administration remains to be seen. What is clear is that the environment for fintech applications and bank mergers should improve when compared to the OCC’s recent record.

FDIC: Resolving future bank failures听

The regional bank failures in 2023 have raised questions about banks’ contingency funding plans as well as the FDIC’s response. Indeed, the failures of Silicon Valley Bank and Signature Bank placed substantial liquidity demands on the FDIC, and while the agency initially met these demands through borrowings from the Fed, it did not pay off the borrowings in full until nearly nine months later.

“The unprecedented nature of these borrowings, and the substantial cost incurred, have raised a number of questions,” stated , a widely followed industry publication. “Will there be a concerted effort to reexamine certain of the FDIC’s practices in relation to resolving failed banks?”

There are at least signs that an FDIC under new leadership might take an interest in these topics. There are two Republican members of the FDIC board 鈥� vice chair Travis Hill and director Jonathan McKernan 鈥� both of whom have been outspoken on the issue. “The FDIC has an obligation to minimize losses when resolving failed banks, and it is hard to argue we did that here,” . In terms of leadership, Hill is seen as most likely to lead the FDIC.

Current FDIC Chair Martin Gruenberg, who has presided over a misconduct scandal that has engulfed the agency, has said that he would听not leave the post until the Senate confirms a successor.

CFPB: New rules at risk听

Under the last Trump administration, Trump’s first CFPB director, Mick Mulvaney, was a vocal critic and opponent of the agency.

A听 from the law firm McGlinchey, noted that with the Republicans retaining control of the House of Representatives and thereby taking complete control of Congress, “President-elect Trump may be able to utilize the Congressional Review Act to roll back certain rules published by the CFPB.”

The Congressional Review Act requires executive agencies to report new rules to Congress and then gives Congress 60 days to legislatively override such rules. That tends to be a high burden, as it requires a majority of both the House and Senate. Nevertheless, it is possible that in a Republican-controlled Congress, the Trump Administration would attempt to overturn recently finalized (or soon-to-be finalized) CFPB rules.

In fact, industry experts have identified several rules at risk or subject to substantial revision under a Republican-led agency. According to law firm听, these are likely to include:

• • • Section 1033 鈥� The CFPB released its final “open banking rule” on October 22, the culmination of an eight-year process spanning three presidential administrations.
    • Section 1071: Small business data collection 鈥� The rule is in the implementation phase, but litigants have challenged the rule in federal court.
    • Overdraft and NSF fees 鈥� Given the critical posture of the industry toward both rulemakings, it is possible, or even probable, that new leadership would delay the implementation of one or both rules while it considers whether to revoke them.

Given the new landscape for federal banking regulation and rulemaking, it鈥檚 likely that the financial services industry is in for some stark 鈥� yet in some cases, welcoming 鈥� changes when the new Trump administration takes over.

You can find more about the challenges that financial institutions are facing here.

Financial regulatory impact

Trump has been an outspoken supporter of digital assets and cryptocurrencies. At a Bitcoin conference earlier this year, he promised to build a government stockpile of Bitcoin and to fire U.S. Securities and Exchange Commission (SEC) Chair Gary Gensler on the first day of his administration.

Although it may be up for debate whether Trump can actually fire Gensler, he can demote him from the chair position and designate a new chair. The likely replacement would be Republican Commissioner Hester Peirce or her Republican colleague, Mark Uyeda. Although Gensler could stay on for the remainder of his term as Commissioner through 2026, it is customary in such situations for chairs to step down with such a change in power in the presidency.

Crypto is a big winner

Bitcoin prices spiked to an all-time high on election night above $75,000 as the outcome of the election unfolded, and the US stock market exploded the morning after the election, clearly indicating some investors were very bullish on the Trump win.

And perhaps the most notable race beyond the Trump victory that is relevant to financial services regulation, occurred in the Ohio U.S. Senate race in which Sen. Sherod Brown (D-Ohio), Chair of the powerful Senate Banking Committee, lost his race. Brown has been an outspoken critic of crypto-assets and a close ally of Gensler. The crypto industry targeted Brown, raising an estimated $40 million through various political action committees and contributions for his victorious opponent, Bernie Moreno, a businessman from Ohio.

However, Sen. Senator Elizabeth Warren (D-Mass.), a staunch crypto critic, easily won a third term, defeating pro-crypto candidate John Deaton. With the Democrats losing control of the Senate and Brown’s defeat, however, Warren stands to be the next ranking member of the Senate Banking Committee.

Sustainable investing听& deregulation

Trump’s presidency is set to have profound implications for sustainable investing. A cornerstone of his campaign promises includes rolling back green regulations that currently hinder oil and gas drilling and coal mining. If enacted, these deregulatory measures could significantly boost shares in traditional energy sectors, reversing the gains made under the Biden-Harris administration鈥檚 climate policies.

Trump also has expressed a firm intention to rescind all unspent funds under the Inflation Reduction Act, a landmark climate law from the Biden-Harris administration. This act encompasses hundreds of billions of dollars in subsidies for electric vehicles, solar power, and wind energy. The rollback of such funds could stymie growth in renewable energy sectors, although comprehensive changes would likely necessitate congressional approval. It’s worth noting that several Republican lawmakers have shown support for parts of the Inflation Reduction Act, indicating potential resistance within Trump’s own party.

Broader economic implications听

A Trump presidency is expected to foster a more protectionist trade environment. His previous tenure was marked by trade wars, particularly with China, which saw tariffs imposed on a range of goods. Renewed trade hostilities could disrupt global commerce, create supply chain bottlenecks, and increase costs for consumers and businesses alike. The ripple effects would be felt globally, with economies closely tied to US trade policy bearing the brunt.

The regulatory landscape under Trump is also expected to see significant shifts. Deregulation would be a key theme, affecting sectors from energy to finance. While this might spur short-term economic growth by reducing compliance costs for businesses, it could also lead to longer-term risks such as environmental degradation and financial instability. The rollback of regulations designed to mitigate climate change could have severe environmental consequences, while less stringent financial oversight might increase the likelihood of market excesses and crises.

You can hear the recent 成人VR视频 Institute Insights podcast about on Spotify here.

On the fiscal front, Trump’s proposed tax policies could lead to substantial changes in the US economy. Tax cuts, particularly for corporations and high-income earners, might stimulate investment and economic activity; however, these measures could also exacerbate income inequality and increase the federal deficit, leading to potential long-term economic challenges.

Individual industry sectors could also see various impacts. The energy sector, for example, stands to gain significantly from Trump’s proposed policies. Rolling back regulations on oil, gas, and coal industries would likely lead to increased production and profitability. However, this could come at the cost of environmental sustainability and could slow the transition to renewable energy sources.

In the technology sector, the outcome could be mixed. On one hand, deregulation might benefit tech companies by reducing operational constraints; but on the other, increased tariffs and trade tensions with key markets like China could disrupt supply chains and affect profitability.

Further, Trump’s stance on healthcare could lead to attempts to dismantle or alter the Affordable Care Act. This could result in significant changes in healthcare coverage and costs, impacting both consumers and providers. The pharmaceutical sector might benefit from deregulation, but broader healthcare access issues could arise.

Conclusion听

Even though no one can predict the future for certain, the election of Donald Trump is set to bring profound changes to the economic and regulatory landscape of the United States. Emerging markets, sustainable investing, and various sectors will all feel the impact of his policies. While some industries might benefit from deregulation and tax cuts, the broader implications could include increased market volatility, environmental risks, and challenges to global trade dynamics.

As we look ahead, it is crucial to consider these potential outcomes and prepare for the complexities and opportunities they present. The economic and regulatory shifts under a Trump administration will undoubtedly shape the global landscape in significant ways, demanding careful analysis and strategic response from businesses, investors, and policymakers alike.

Additional reporting for this post was supplied by dispatches from Todd Ehret of Regulatory Intelligence

In a recent webinar, Shaun Hunley, Executive Editor of Thomson Reuter Checkpoint, along with Daniel Winnick, a principal at KPMG’s Washington National Tax Group, discussed how tax professionals should position themselves and their clients for potential changes (large and small) as we approach a pivotal election.

The current tax landscape & expiring provisions

To begin with, regardless of who sits in the White House beginning in January 2025, they will have to address the possible looming fiscal cliff based on the sunsetting of some of the Tax Cuts and Jobs Act (TCJA) tax provisions that are set to expire at the end of 2025. TCJA, the most significant overhaul of the tax code in modern history, introduced numerous expiring provisions that could impact both individuals and corporate taxpayers, unless these expiration dates are extended.

For individuals, according Hunley, the reduction in tax rates and the doubling of the standard deduction under the TCJA were significant changes. If these provisions expire, taxpayers could face higher rates and a return to lower standard deductions, leading to increased tax liabilities. In addition, the Qualified Business Income (QBI) deduction, a vital provision for pass-through entities, is also at risk. Huntley noted that practitioners have spent years mastering this deduction, and its potential expiration could disrupt tax planning for many businesses. Additionally, the $10,000 cap on state and local tax (SALT) deductions remains a contentious issue, with both parties expressing interest in either lifting or modifying it.

For businesses and corporations, Winnick states that the expiring TCJA provisions are only one of the many challenges over the past decade, as tax policy has undergone extraordinary changes, both domestically and internationally. This constant evolution requires tax professionals to adapt swiftly, often dealing with retroactive changes during filing seasons.

The role of political outcomes

Today鈥檚 election, not surprisingly, will play a significant role in shaping future tax policies. Regardless of the outcome, Congress will need to address expiring provisions to avoid significant tax increases for taxpayers. However, the specifics of any legislative changes will depend on which party controls the White House and Congress and, if it鈥檚 a divided government, how they will work together. Winnick pointed out that a divided government could lead to prolonged uncertainty, potentially delaying legislation until 2026.

Strategic planning amid uncertainty

Given all of the potential tax uncertainties on the horizon, tax professionals need to do strategic tax planning for their clients or company, now more than ever. Both Hunley and Winnick emphasized the importance of proactive communication with clients. Indeed, they said, tax professionals should educate themselves about potential changes and model various scenarios for their clients. This can involve using client data to identify those clients most affected by potential changes and provide tailored advice.

These experts suggested that by leveraging technology for data mining and modeling, tax professionals can present clients with different outcomes based on an array of possible legislative scenarios. This proactive approach not only prepares clients for potential changes but also positions tax professionals as trusted advisors.

Opportunities in challenges

The possible legislative changes could feel daunting; the unknowns, the potential knowns, and how it all will impact clients could make some tax professionals feel like closing up shop and hiding under a rock until things blow over. While this may be one way to look at things, it鈥檚 possibly not the most effective. You, as a tax professional, still need to make money, and your clients will most likely need you more than they did back in 2017 when TCJA was enacted.

However, those tax professional who can see the opportunities in these uncertainties, really have an opportunity to demonstrate their value. By staying informed and proactive, tax professionals can offer their clients advice to help them plan for and, in some cases, maximize the advantages of their tax position.

Hunley encouraged tax practitioners to view legislative changes as an opportunity to engage with clients, showcase their expertise, and expand their advisory roles. This approach not only helps clients navigate uncertainty but also positions tax professionals as indispensable partners in strategic planning.

Conclusion

The insights shared by Hunley and Winnick highlight the importance of preparation and adaptability in the face of uncertainty. By embracing these principles, tax professionals can turn challenges into opportunities, ensuring that they remain valuable partners to their clients in an ever-changing tax environment.

As today鈥檚 election will make clear, all tax professionals must engage in strategic planning because the tax landscape will continue to be shaped, shifted, and influenced by politics. A tax professional who is informed, proactive, and adaptable is one who can survive and thrive during the coming months of changing tax regulations and tax policy uncertainty. By leveraging technology, modeling various scenarios, and maintaining open communication with clients, these proactive tax professionals can navigate the complexities of any tax policy changes effectively.

For more insights from Hunley and Winnick on what tax professionals should consider and do, check out the webinar, here.

In fact, climate change worries dominated the top shareholder votes at several major restaurant chains during proxy season, which traditionally occurs in Spring. The Accountability Board, a newly formed shareholder advocacy group focusing on the food industry, submitted resolutions addressing climate concerns at and received at least 50% support.

At the same time, proxy trend expert , Special Counsel at Sullivan & Cromwell, coordinates the firm鈥檚 ESG practice and is part of the team that was drafting the firm鈥檚 12th annual proxy season review, which looks at shareholder proposal across the S&P Composite 1500. In her work, Hu cites other significant developments, including that in Environmental issues, there was a differentiation in proposals with those focusing on only Scope 1 and 2 emissions receiving more support than those that included Scope 3, which focuses on supply chain emissions.

Further, under the Social rubric, Hu points out how the Supreme Court鈥檚 2023 decision in Students for Fair Admissions v. Harvard, in which the court held that race-based affirmative action programs in college admissions processes were unconstitutional, has impacted shareholder proposals around diversity, equity & inclusion (DEI). And from the Governance angle, a recent decision by the Delaware Supreme Court has impacted shareholder proposals around advancing notice bylaws and the director nomination process.

New tactics emerge during 2024 proxy season

Beyond these significant developments concerning ESG-related issues, Hu says she sees two noteworthy themes from the 2024 proxy season that are likely to impact shareholder proposals and company-to-investor engagement going forward. The first is how investors are experimenting with new types of proposals and ways to bring issues to the table. Hu notes how unions led the way with the labor coalition, , for example, launching an effort to replace three Starbucks board members, but withdrawing after progress was made during engagement.

The second, yet less noticed, theme focused on working around Securities and Exchange Commission (SEC) Rule 14a-8, which only allows one proposal per shareholder and听provides a framework to allow a shareholder to request that a proposal be included in the company’s proxy statement, to be voted upon at the company’s shareholder meeting.

鈥淭he divide between pro- and anti-ESG actions by some states will continue unless there is a Supreme Court decision that restricts state laws.鈥�

Unions submitted five proposals to mining company Warrior Met Coal, and the company voluntarily included all five shareholder proposals on the ballot. When the proposals went to vote, they achieved notable results. The successes at the Warrior Met Coal engagement point to proponents of proposals using a new method to get more than one issue up for a vote and potentially having more success than the typical SEC 14a-8 engagement.

Factors driving reduction of shareholder proposals

Some argue the reduction of ESG-related shareholder proposals in 2024 is evidence of decreased support for ESG issues among investors, but this is not completely accurate, Hu explains, adding that there are other factors influencing this reduction, including:

Increases in regulatory developments 鈥� In fact, ESG-related regulations are on the rise. In situations in which investors are asking a company to do more beyond the regulatory requirement, the company could be exposing itself to greater legal liability. As a result, some investors were more willing to let companies off the hook, given the expanded legal risk exposure.

Ongoing polarization increases uncertainty 鈥� The multifaceted nature of diverging approaches to ESG-related regulation between the United States and the European Union, and among the US federal government and various US states has left some investors hesitant to lean on either side of an issue.

Scrutiny on investors and diverging state laws 鈥� Interestingly, this lack of certainty is forcing more private engagement between companies and their investors. This increase in one-on-one dialogue has focused on whether the board and management could properly oversee companies鈥� courses of action.

To be sure, these emerging ESG issues and new trends and engagement tactics are driving changes in the corporate governance landscape. To manage through the complexity, Hu suggests that in-house counsel stay focused on the material and relevant issues that most impact the company while staying apprised of new legal and regulatory requirements, as well as case law that could impact the organization.

Staying informed is certainly easier said than done, of course. The combined complexity and uncertainty of the environment is making this process more difficult and time consuming. For example, the diverging regulatory approaches between the US and EU create differing regimes of mandatory requirements, Hu explains. In addition, there are emerging issues on the horizon, such as nature, biodiversity, and human rights in the supply chain that have yet to enter the mainstream in the US but are gaining traction in shareholder proposals in the EU.

Looking beyond the US election

As Hu looks out a few months into the post-election environment in the US, she does not expect the uncertainty to subside. 鈥淭he divide between pro- and anti-ESG actions by some states will continue unless there is a Supreme Court decision that restricts state laws,鈥� Hu says.

Yet, as the ESG landscape continues to evolve, companies and investors alike must navigate an increasingly complex and polarized environment. The future of corporate governance and shareholder engagement will likely be shaped by a combination of regulatory changes, emerging issues, and the need for more nuanced, private dialogues between management and stakeholders that requires adaptability and vigilance from all parties involved.

You can find more on , here.

The European Union recently felt the impact of political discord as it advanced legislation related to ESG criteria; in particular, the scope of the EU鈥檚 Corporate Sustainability Due Diligence Directive (CSDDD) was narrowed after Germany and Italy indicated they would abstain during the adoption process in February and March. One of the most significant changes that resulted from negotiations in the final CSDDD agreement was the dramatically reduced scope of impacted companies. And this is happening amid already varying regulatory approaches in the United Kingdom and the EU.

At the same time, and anti-ESG moves by some US states continue 鈥� and with elections in the US and UK on the horizon, it is likely that the pace of legislative progress will slow even further, and these political debates will likely intensify divisions.

If there is another President Trump administration, there is talk about a dramatic across-the-board movement of de-regulation, which could have negative implications for the impact of the extra-territorial pro-sustainability laws coming out of the EU.

Macroeconomic realities make consistent ESG policy unlikely

In fact, the sustainability policy agenda is likely to face considerable challenges globally due to a range of macroeconomic issues. Election years intensify the pressure on political candidates to address immediate economic concerns, which include combatting inflation, limiting growing federal deficits and debt, and managing unemployment. All of these challenges reduce the urgency of the sustainability agenda in the near term. And in the recent European Parliament elections 鈥渨ill make it harder to pass ambitious EU climate policies, but the majority of Europe’s current world-leading green policies are likely to stay put.鈥�

Further, business compliance costs are also a significant factor, with some resistance to ESG measures stemming from concerns over their financial implications. In fact, some companies are weighing the cost of non-compliance for the early years of the EU鈥檚 Corporate Sustainability Reporting Directive (CSRD) as a legitimate strategy. quoted a business executive saying: 鈥淔rom talking to peers in my sector, I know of several businesses debating how much the financial penalties might be [for non-compliance] when compared to the cost of compliance and weighing these up鈥� and seriously considering not reporting against CSRD for a few years.鈥�

Geopolitical factors add long term complexity

Long term, geopolitical factors 鈥� such as 鈥� also can introduce ongoing challenges and uncertainties that could potentially impact the success of an ESG project or initiative. Countries that boast a historical record of prioritizing issues falling within the environmental and social sphere 鈥� or the E and S of ESG 鈥� are likely to emerge as more desirable trading counterparts. Conversely, high conflict areas in the global southern hemisphere may be less desirable. Unfortunately, those areas also are major sources of critical rare minerals, such as lithium, that are in short supply around the world because of the demand for use in mobile phones and smart vehicles.

What may be more concerning, however, is that markets around the world . 鈥淪tock markets sometimes are underestimating the potential impact of geopolitical risks that are there,鈥� said the European Central Bank Vice-President Luis de Guindos. Remarkably, despite numerous countries facing elections this year and the continuing conflicts in the Middle East and Ukraine, stock markets have climbed to unprecedented levels this year.

Many ESG proponents are hoping that these elections result in governmental leaders that are accountable, act ethically and with openness, and recognize that many of these principles are fundamental to attaining both national safety and economic prosperity. Hope is not a plan, of course, but there are actions that compliance & risk professionals can take now that might reduce the potential impact.

Get educated on geopolitical risk 鈥� Based on where their companies have operations, corporate risk professionals need to understand the local, national, and transnational policies and decisions, including territorial conflicts, that could impact their organizations.

Prepare for regulatory changes and uncertainties 鈥� As political climates shift, especially with upcoming critical elections in the US and UK, corporate risk professionals should prepare for a potential slowdown in legislative progress and the possibility of further deregulation. This preparation might include scenario-planning and the development of flexible strategies that can adapt to rapid policy changes. Companies should also be ready to respond to any increases in litigation or reputational risks that may arise due to investigative reporting or stalled legislative processes.

Incorporate geopolitical risks into sustainability planning 鈥� Potential impact of geopolitical factors 鈥� such as international trade relationships, global power dynamics, and conflicts over rare minerals 鈥� may impact the long-term success of many companies鈥� sustainability initiatives. Corporate compliance & risk professionals should incorporate these geopolitical concerns into their risk assessments and strategic planning processes to ensure that their companies鈥� sustainability efforts are resilient and adaptable to changing global dynamics.

It’s important to note that all of these actions should be tailored to the specific circumstances and priorities of each company and should be undertaken in consultation with relevant stakeholders and subject matter experts.

However, the IRA introduces a compelling alternative by permitting the buying and selling of these credits for cash. This creates a new avenue for companies seeking tax savings, offering them the option to engage in a growing tax credit market instead of committing to a long-term renewable energy investment with a sponsor.

Although developers and some investors still have compelling reasons to seek tax equity investments 鈥� such as depreciation deductions 鈥� the ability to transfer these credits introduces additional flexibility that allows investors to consider various options when aligning their investments with their tax objectives.

Overview of tax equity

The US tax code, notably with the addition of the IRA, incentivizes investments in specific sectors, particularly renewable energy. Often, developers of renewable energy projects cannot directly utilize these tax advantages, leading to the creation of a tax equity market. This market draws investment from corporations capable of funding these projects with available cash. Key roles and terms in a conventional tax equity framework include:

• • • The project developer, referred to as the project sponsor, cannot fully leverage tax credits and depreciation benefits due to a limited tax liability.
    • A corporate taxpayer, acting as an investor, gives cash to achieve a desired return on investment or internal rate of return through tax benefits allocation.

For investors, the initial expenditure is the upfront investment in tax equity. The anticipated returns comprise three main components: i) a decrease in cash tax liability through acquiring tax credits and expedited tax depreciation benefits; ii) regular preferred cash distributions on a quarterly or annual basis; and iii) a final cash buy-out at the conclusion of the deal.

In a standard partnership flip deal, the partnership distributes 99% of the income, losses, and tax credits to the investor until a predetermined yield is achieved, although cash distributions follow a different proportion. Once this target yield is met, the share of benefits allocated to the investor diminishes, and the developer has the option to purchase the investor’s residual interest, an option that is commonly exercised.

Credit transfer provisions in the IRA

The IRA now allows for the sale of 11 specific tax credits, which were previously non-transferable or did not exist under US federal income tax regulations. This option is open to a broad range of eligible taxpayers, including for-profit corporations (S-corporations included), partnerships, individuals, and trusts. However, entities like tax-exempt organizations and local governments, which could opt for direct cash refunds, are not permitted to sell credits.

As this area of tax credit transferability continues to develop, the current market offers the advantage of acquiring credits at a discount, with a reduced investment timeframe and a more straightforward legal procedure compared to traditional tax equity dealings.

The cost of purchasing tax credits may differ or be influenced by factors such as the seller’s financial reliability, the project’s scope, the type of credit and its volume, and whether tax insurance is in place. Transactions must be conducted in cash between unrelated parties, and credits can be sold only once. The transfer is formalized through a purchase and sale agreement, accompanied by a transfer election statement included in both the seller’s and buyer’s tax returns for the relevant year. Considering the potential risks associated with these transactions, either the buyer or seller has the option to secure insurance to safeguard against possible recapture events.

To give an example, a recent client of ours was able to reduce their taxes by an estimated $2.2 million by purchasing discounted tax credits. The company鈥檚 C-corporations had the flexibility to acquire IRA credits to lower federal taxes for 2023 and 2024, including purchasing excess credits in 2023 and applying them retroactively for up to three years. What is remarkable is the manufacturer鈥檚 anticipated 8% savings off its total tax bill also will not be taxable for federal income tax purposes.

The company was particularly pleased to seize this opportunity early, given the finite availability of credits, the demand for which might drive up prices in the future. Moreover, the company’s exploration of IRA benefits extends further 鈥� now, the leaders of the company are collaborating with our firm to leverage another IRA opportunity that enables their nonprofit family foundation to access refundable credits for initiatives in green energy investment.

Deciding on the best approach

The market is expected to remain vibrant for both conventional tax equity investments and transactions involving the transferability of tax credits. Developers are likely to keep seeking tax equity investments in order to capitalize on tax depreciation benefits, which are absent in tax credit transfer scenarios. Also, tax equity investors are exploring strategies to engage in traditional tax equity frameworks while also considering separate transactions to transfer credits.

Investors in both avenues 鈥� tax equity and credit transferability 鈥� should implement thorough due diligence and secure tax insurance to minimize risks. The relatively simpler process of tax credit transferability is drawing a significant number of new investors to the field; and ultimately, each developer and investor will assess their unique circumstances to decide whether to opt for tax equity, credit transferability, or a combination of both strategies.

Whatever approach is decided upon, the key is that the transferability of tax credits is an innovation that opens the market for new investors in the tax credit investment space.

Impact of the Tax Cuts and Jobs Act (TCJA)

, enacted in 2017, has been comprehensive and offered sweetening changes of recent tax law. The TCJA bought into being numerous deductions that many tax specialists have said altered the financial landscape for businesses and individuals alike, and even . However, as Hunley points out, not all of TCJA was permanent and there are some provisions that are set to expire.

In fact, certain very popular provisions, including the qualified business income deduction, are on the list that is slated to expire. The qualified business income deduction was a benefit for many small business owners and if it is allowed to expire, it could reshape the financial planning landscape for many businesses. The sunset of this provision presents both challenges and opportunities for tax professionals who look to advise their clients on the best course of action.

Potential changes with the election

With an election happening in less than seven months, the possibility of a new administration in the White House looms large, bringing with it the prospect of a tax policy overhaul. In the podcast, we delved into the implications of such a change, particularly in relation to environmental, social & governance (ESG) considerations. Energy tax credits, which are integral to ESG strategies, could see a significant shift in importance, depending on the election results and subsequent policy direction.

If the White House remains as is 鈥� that is, President Joseph Biden wins re-election 鈥� then these credits, which are intertwined with the broader ESG movement, could see a reorientation to support sustainable and socially responsible initiatives more aggressively. If the White House flips 鈥� that is, former President Donald Trump wins 鈥� the opposite could be true, especially if the U.S. House of Representatives stays Republican-majority and the U.S. Senate flips. In that case, these energy tax credits would likely be deprioritized, if not outright repealed.

It is worth noting that the growing emphasis around the world on sustainability and responsible corporate governance suggests that there might be increased support for tax incentives that promote environmental stewardship. This could be an area in which lawmakers from both political parties find common ground, given the public’s growing concern over climate change and the desire to incentivize green energy initiatives.

The Green Book and beyond

The prospects of , as outlined annually by the Biden administration, present a complex and ambitious vision for the future of the US tax system. The Green Book is essentially an annual policy document that outlines the administration’s tax priorities, offering a blueprint for potential legislative action.

Hunley’s perspective on the Green Book proposals is cautiously optimistic. He said that he recognizes the inherent challenges in advancing a comprehensive tax reform agenda, particularly those that involve raising revenue or overhauling established tax regimes. For instance, Green Book proposals to close loopholes like carried interest have historically faced stiff resistance from influential interest groups and sectors that benefit from such provisions. Despite this, there’s a sense that some measures, such as expanding individual tax credits, may find common ground across the aisle.

Such action as expanding individual tax credits, especially those aimed at low- and middle-income families, can be politically palatable as they directly support taxpayers and can stimulate economic growth. Credits like the Child Tax Credit and the Earned Income Tax Credit have previously seen bipartisan support, and their expansion aligns with broader social objectives, such as reducing child poverty and incentivizing work.

By contrast, other provisions in the Green Book that seek to raise revenue, such as increasing the top marginal tax rate or adjusting the corporate tax rate, are likely to encounter more resistance. The political climate, public sentiment, and the balance of power in Congress 鈥� especially if it changes 鈥� all will play critical roles in determining the feasibility of these proposals.

Proactive measures for tax practitioners

In the podcast, Hunley highlights the importance of tax practitioners staying informed and ready to adapt, and he emphasizes the necessity for professionals to educate their clients about the TCJA’s impending sunset provisions. Practitioners should also prepare themselves and their clients for any alterations in deductions and tax credits that are likely to follow.

Staying ahead of the curve is not just good practice, Hunley advises, it is imperative for ensuring that clients are positioned to navigate the tax terrain effectively.

From the nuances of the expiring TCJA provisions to the potential enactment of the Green Book and the election’s influence on tax policies, tax professionals and their clients need to ready themselves for a possibly changing tax policy landscape that may be filled with both complexity and opportunity.

To learn more about the impact of the election on future tax policy, listen to (on Spotify) featuring a conversation with Shaun Hunley, an Executive Editor at 成人VR视频.

Of particular importance is the ongoing evolution of the erosion of the rule of law around the world. This fact alone creates risk exposure, especially in governance and assessment of legal risks, for companies鈥� chief legal officer (CLO) or general counsel (GCs), who act as the guardians of the company when it comes to legal, reputational, or ethical risks as well as other types of risk.

Erosion in the rule of law

Sean West, co-founder of and author of the newsletter, recently points out that the World Justice Project has framed the current status of the rule of law as 鈥渋n recession鈥� around the world, a .

For companies, the implication of this decay is that the assumptions in how the practice of law operates are no longer certain, according to West. 鈥淔rom an in-house point of view, we see CLOs getting pulled very much into the political planning and fray of their companies,鈥� he says, adding that the disappearance of the norms in the roles that lawyers and the judiciary play are causing a seismic influence in the risk environment for companies. 鈥淭his could leave companies to underestimate the risk that they face in certain places.鈥�

For example, the companies that lawyers represent 鈥� whether they work as in-house counsel or external legal advisers 鈥� are subject to the effects of political climates, which can affect their share prices and business strategies to different extents. If lawyers only considers the legal aspects narrowly, they might miss out on identifying certain opportunities and hazards. Indeed, a company might win a legal battle but face unexpected political fallout as a result.

Further, legal professionals might judge a situation to be of low risk by not factoring in the wider political context, which is especially relevant given the numerous global elections happening this year. 鈥淭he way that things have always been in a particular region or economy may not be the way that they are six months from now when a more populist or a new government comes in,鈥� West explains.

Interrelated risks create integrated approaches

The lack of certainty in international affairs and how it could impact companies is one of many challenges for CLOs and GCs in the risk landscape. Add in the technological shifts and fragmentation of regulatory regimes, and the overall risk environment gets murky fast. 鈥淲e can’t just talk about things like international affairs or artificial intelligence or environmental, social and governance issues as if their independent events,鈥� West says. 鈥淭hey’re happening in a context that creates friction.鈥�

Law firms 鈥� especially as technology elevates the standard for delivering value-added services to their clients 鈥� must consider the evolving needs of their customers to stay competitive. Indeed, being proactive on behalf of their clients is going to be worth a lot more than spending an extra dozen hours or so. Ongoing conflicts in the Middle East, for example, can disrupt companies鈥� supply chains, resulting in various legal complexities, from withdrawing operations from affected regions to revising agreements or justifying unmet commitments.

For law firms doing business with clients in these circumstances, the task of understanding the initial causes of these supply issues is crucial for identifying key strategic or competitive opportunities for the businesses. GCs are increasingly involved in these discussions, although they may not always have the collective expertise from their deputies and team members who may or may not be skilled in this specific type of analytical work, West adds.

Guidance for CLOs and GCs to address governance gaps

West advises that GCs and CLOs review their companies鈥� strategic plans and determine the Top 5 priorities that are critical for their companies鈥� success. Then, in collaboration with cross-functional peers, they should analyze how politics can disrupt or enable these priorities. They then are in a better position to make an assessment through the lenses of both risk and opportunity, simply by answering two questions:

• • • What is the company really trying to achieve today based on my knowledge as an manager of risk, whether it be legal, reputational, financial, or something else?
    • What are the different ways in which the politics of a region could manifest itself and disrupt the company by triggering the type of risk for which I am responsible?

West explains that it is then necessary for the group to build some scenarios around the potential events and identify what their companies鈥� proper responses would be. Working collectively as a group 鈥� when the group is not in the heat of a crisis 鈥� to build out plans for how each function would operate should the scenario develop enables effective decision-making around the best action when a crisis does hit.

Also equally important is the development of functional plans. For risk management leaders, it is important to understand what their companies鈥� mitigating actions would be in advance of any crisis. Going one step further, one best practice is embedding these discussions in their companies鈥� enterprise risk management governance and processes and to gather with peers a few times a year to review scenarios and plans, while keeping the values front and center to determine effective responses.

The decay in the rule of law is just one of many dynamic complexities in today鈥檚 risk environment in which companies are operating. It is critical for GCs and CLOs to gather with their peers regularly to assess and re-assess how the operating context is changing and then tweaking their risk mitigation response plans appropriately as a key part of ongoing governance to ensure their companies鈥� sustainability and success.