Business leaders hope they can satisfy Biden’s big climate goals with their own promises—not regulation

Last week, President Joe Biden brought a bipartisan group of senators into the Oval Office to begin discussions around his Build Back Better infrastructure plan, which centers on creating a clean energy economy. The meeting’s accelerated timing—the COVID-19 relief package likely won’t be voted on for weeks, and the Senate was still in the midst of Trump’s impeachment trial—surprised many in the Beltway, who thought that they’d be able to avoid any talk of infrastructure week for at least a year. 

Now the business community is scrambling to grab a seat at the table as details of the $7.3 trillion plan are hammered out behind closed doors. Biden, a known consensus builder, will likely give them several. 

Companies that previously ignored calls to address climate change see what’s coming under the Biden administration.

The situation isn’t dissimilar to that of a child who refuses to clean their room until a parent threatens punishment, said Dan Esty, director of the Yale Center for Environmental Law and Policy and head of the Yale Initiative on Sustainable Finance. They realize they may soon face repercussions, and so they’re starting to clean.

“Companies are moving fast to rethink themselves, to remake their own business model before they’re dictated to, with little flexibility, exactly what they have to take on,” said Esty.  

The Biden administration thus far has remained relatively quiet about increased oversight and standards. Instead, the White House has marketed climate change policy as a way to create jobs, invest in R&D, and stimulate the economy through large-scale infrastructure projects. “We’re talking about American innovation, American products, American labor,” said Biden. 

Biden’s Build Back Better plan aims to rebuild crumbling infrastructure across the country, create 1 million new jobs in the American auto industry, provide every U.S. city with 100,000 residents with zero-emissions public transportation, create a carbon-pollution-free power sector by 2035, update 4 million buildings, construct 1.5 million new sustainable homes, and invest heavily in green tech and innovation. Its goals are lofty—and expensive. 

“The transition to clean energy will mean millions of new, good-paying jobs in communities across America, and the companies that embrace that transition will be better prepared to compete in the coming years and decades,” said Jamal Raad, cofounder and executive director of climate change advocacy group Evergreen Action. “The Biden climate agenda will supercharge that transition, and the business community should be ready to pounce on the opportunities that this climate focus will deliver.”

In short, if a company is willing to agree to the climate agenda, the Biden administration will do all it can to ensure that it makes money. 

But business leaders who enjoyed relatively free rein around environmental regulation under the Trump administration fear that they’ll soon see those reins tighten. They’re hoping that if they create and abide by their own environmental rubric, they’ll be able to avoid governmental intervention with requirements that will likely be more costly and easily enforced.

Companies like Delta Air Lines and BP have said they will go carbon neutral, and Microsoft even promised to reduce the amount of carbon dioxide already in the atmosphere. Coca-Cola, Nike, and Walmart have made similar pledges. 

One analysis found that nearly a quarter of all Fortune 500 companies have made commitments to carbon neutrality, 100% renewable power, or other science-based targets by 2030. Those companies, which have a combined revenue of $8 trillion and employ 18 million people, represent a fourfold increase over the past four years.

Corporate leaders will readily accept positive incentives: More than 150 CEOs and world leaders, including Amazon executive chairman Jeff Bezos, Salesforce CEO Marc Benioff, and Ford Motor Company executive chairman Bill Ford, signed a letter to Biden last month pledging to support Biden’s goal of combating climate change. 

But financial and legal repercussions for not meeting legal standards aren’t as welcome. By getting ahead of the Biden administration’s legislation and implementing their own voluntary standards, business leaders hope they can argue that the status quo is just fine and any enforceable requirements are unnecessary. 

“They’re going to make their big promises for 2050 and hope that staves off real standards with enforcement vehicles to ensure the transition to clean energy,” said Raad. “Look, we appreciate them saying these positive things and making commitments. And if they’re looking for certainty, then strong legal commitments will help with that.”

If they’re looking for certainty, then strong legal commitments will help with that.

Jamal Raad, cofounder and executive director, Evergreen Action

Voluntary standards, which have been pushed by consulting firms like McKinsey & Company, are noble, said Raad, but without enforceable legislation, reporting metrics, and standards there’s no way to ensure that companies stick to their commitments and no way to protect the underserved communities most impacted by environmental pollution and climate damage. 

BlackRock CEO Larry Fink wrote his own letter, this one to CEOs, explaining that his company would now make decisions about its $7 trillion in investments with environmental sustainability as its core goal. 

“Awareness is rapidly changing, and I believe we are on the edge of a fundamental reshaping of finance,” wrote Fink. “The evidence on climate risk is compelling investors to reassess core assumptions about modern finance.”

Publicly supporting green policy is also good for business. A growing body of evidence finds that companies that invest in clean energy and engage in green practices outperform their nongreen competitors. That trend will likely continue as the Biden administration rewards the shift to clean energy. 

On Wall Street, investors are placing “significant bets on the seriousness of the administration’s commitment to decarbonization,” said Esty, who previously served as commissioner of the Connecticut Department of Energy and Environmental Protection and as an adviser to the Biden campaign. “There’s a flurry of interest in clean energy projects and companies, and there continues to be a selloff of those stuck in fossil fuels.” Wall Street is already demanding more quality metrics around sustainable investing, he said. When it comes to markets, certainty is a good thing.

I believe we are on the edge of a fundamental reshaping of finance.

BlackRock CEO Larry Fink (in a letter to CEOs)

Esty has consulted with half a dozen CEOs this month alone, all of whom are actively working on net zero emissions strategies. CEOs, he said, are asking him what carbon neutrality actually means, how much it will cost them, and if they can get an infusion of capital for being “on the pathway to this transformed future.” 

It would appear that companies want the revenue boom that going green can bring without the hassle of adhering to government-enforced standards. But it’s too late to give companies time to self-regulate, said Raad. The repercussions of climate change are already being felt across the U.S. and the globe. After the last four years, we can’t take the risk that they don’t adhere to their unenforceable standards, he said. 

Regardless of corporate intentions, the winds are shifting in D.C., where a number of Fortune 500 companies limited or paused their lobbying and campaign contributions after the Capitol riots in early January. Others have indicated that they will not contribute to the campaigns of politicians who are viewed as obstructionist. Denying the reality or severity of climate change may no longer be an option for cash-strapped representatives seeking reelection. 

And even while staring down the barrel of new regulations and standards, business leaders say they feel good with Biden at the helm: His consistency and lack of ambiguity create a safe, or at least a less volatile, environment to conduct business in.

Sure, some companies took advantage of the lack of oversight by the Trump administration, but many expressed dismay about the former President’s unpredictability. His big-picture views on climate policy were unclear and subject to change. The rapid undoing of Obama-era regulations, which manufacturers had spent money and time to meet, sent them into a tailspin.

Corporate confidence fell to its lowest level in a decade under Trump, an astounding feat considering that the stock market was simultaneously hitting new highs, inflation was low, and interest rates were low. 

In the first year of Trump’s presidency, the level of atmospheric greenhouse gases crossed a threshold of concentration that scientists say makes the effects of climate change—rising seas, increased wildfires, erratic weather events, and deadly droughts—irreversible. 

The former President responded by rolling back over 100 environmental rules,  pulling out of the Paris Agreement, and referring to climate change as a hoax invented by China to make U.S. manufacturing less competitive. 

In a letter to Trump in 2019, 17 automakers including Ford, General Motors, Toyota, and Volvo argued that his decision to end auto pollution regulations would create a bifurcated market between states with their own emission standards and would ultimately hurt their bottom line. In return, Trump took to Twitter to call out executives for being “foolish” and “weak.”

Under the Biden presidency, Esty says, business leaders have expressed that they’re reassured by his steady goalposts. They might not agree with what’s happening, but they no longer fear a “set of shifting targets that are at risk of being moved overnight as a new tweet emerges,” he said.  

Leaders also recognize, perhaps reluctantly, that there are aspects of their 20th-century economic models that just don’t work in the 21st century, said Esty.

Companies that externalize the cost of doing business to the American public, by putting up a smokestack and polluting the air or by paying full-time employees so little that they have to depend on public assistance, have become increasingly demonized in the political and public arena. That will eventually lead to regulation, and businesses that depend on greenhouse gas emissions will be forced to adapt. They won’t be able to easily create a private profit at the public’s expense.

That’s not to say pollution will stop, just that it will no longer be free. Everything has a price, and if business leaders aren’t swayed by the existential threat of climate change, perhaps a lighter wallet will do the trick.

Explore Fortune’s Blueprint for a climate breakthrough package:

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