A New State of Play: Impact of Changing Regulatory Priorities on US Banks and their ESG Views

Key Insights:

This year brought a shift in the regulatory landscape for the finance sector in the United States. This regulatory shift is likely to impact how banks consider ESG within their business activities. Two of the five biggest US federal banking regulators have signaled changes driven by external pressure, and the remaining three have undergone a leadership change as part of the new US administration’s appointments, depicted in Figure 1.^1,2

Other notable developments underscore this change of tone.³ These include the US Securities and Exchange Commission’s (SEC) decision to pause the legal defense of climate disclosure, and the Federal Reserve’s exit from the Network of Central Banks and Supervisors for Greening the Financial System. Additionally, the Consumer Finance Protection Bureau has suspended all pending investigations and public communications in a change of tack from its previous commitment to crack down on banking “repeat offenders.”^4,5 

Figure 1. Leadership of US Federal Banking Regulators as of March 2025

^{Sources: Consumer Finance Protection Bureau,6 Federal Deposit Insurance Corporation,7 Federal Reserve,8 Office of the Comptroller of the Currency,9 US Securities and Exchange Commission.10} 

^{Note: Blue indicates membership in the Democratic Party. Red indicates membership in the Republican Party.} 

US Banks’ Detachment From Climate Pledges

In recent months, US financial institutions have appeared to echo this regulatory shift with their exit from climate pledges, namely Climate Action 100+, the Equator Principles and the Net-Zero Banking Alliance. See Table 1 for a summary.

Table 1. Large-Cap US Banks Exit From Climate Pledges

^{Source: The Guardian11}

ESG Integration Performance of US Banks Over Time

This detachment from climate pledges suggests banks are falling in step with the latest regulatory environment, but there are indications that some banks began diluting their ESG commitments in loan portfolios much earlier. Still, it is possible that the shift in regulatory priorities may compound this trend. Morningstar Sustainalytics’ historical data illustrates how large US banks’ policies and programs have evolved since 2021. 

Figure 2 captures the strength of banks’ programs based on the management indicator corporate finance – ESG integration. Sustainalytics uses this indicator in our ESG Risk Ratings research to assess the quality of a financial institution’s program to incorporate ESG issues within its services to the corporate sector. The indicator includes criteria on whether a bank performs enhanced due diligence on certain transactions that include high ESG risk (e.g., coal or defense); whether a bank monitors high ESG risk clients throughout the duration of the loan term; and if there is adequate governance and oversight of corporate loan transactions. The data reveals that three out of the six banks tracked, Bank of America, JPMorgan Chase, and Wells Fargo, have diluted the strength of their programs since 2024, from very strong (a score of 100), to strong (a score of 75) or adequate (a score of 50).

Figure 2. Strength of Corporate Finance – ESG Integration Programs of Large-Cap US Banks, 2021-2025

^{Source: Morningstar Sustainalytics.} 

^{Notes: Y-Axis “Strength of Corporate Finance - ESG Integration” is scored as follows: 0 (No evidence of a program), 25 (Weak program), 50 (Adequate program), 75 (Strong program), 100 (Very strong program).}

Figure 3 focuses on credit and loan standards, which is a management indicator that Sustainalytics uses to assess the sophistication of a bank’s policy on environmental and social requirements within its loan portfolio. This includes whether the bank excludes loans to companies within industries that are high risk from an ESG perspective. Sustainalytics’ data shows that the credit and loan standards of two out of six banks, Bank of America and JPMorgan Chase, have been assessed as diluted throughout the previous five-year period, while the remainder have maintained detailed and specific standards (a score of 100). 

Figure 3. Strength of ESG Credit & Loan Standards of Large-Cap US Banks, 2021–2025

^{Source: Morningstar Sustainalytics.} 

^{Notes: Y-Axis “Strength of ESG Credit & Loan Standards” is scored as follows: 0 (No evidence of standards), 40 (General standards, disclosure is insufficient to determine detail), 80 (specific, industry-specific standards), 100 (Detailed and specific standards that exclude certain industries from financing for sustainability reasons).} 

Potential Increase in Scrutiny of ESG Lending Policies and Programs

Still, US banks’ ESG lending policies and programs may face increased scrutiny by federal regulators in line with the new US administration’s support for what it considers fair access to banking services – also known as “anti-debanking.” Fair access laws and regulations are intended to ensure that financial institutions provide equitable access to services without discrimination based on ideological, political, or social beliefs.¹² By extension, the term “debanking” refers to the practice of “terminating or denying access to financial services or products to individuals or businesses based on their lawful activities or affiliations that may be deemed controversial or politically sensitive.”¹³ The concept lies at the heart of politically charged debates concerning ESG principles and certain regulations designed to counteract what are perceived to be potential ideological biases (also referred to as “anti-woke” regulations). 

Federal regulators such as the Federal Deposit Insurance Corporation (FDIC) have signaled their intention to reevaluate banks’ approach to debanking.¹⁴ An attempt by the Office of the Comptroller of the Currency (OCC) in the years during the Trump administration’s first term (2017 to 2021), to curtail what it deemed to be the unfair, coordinated denial of banking services, could resurface during the current term.¹⁵ 

US banks operate under a dual regulatory framework. While for large US banks, federal regulation is predominant, state laws can impose additional requirements, especially in areas like consumer protection and lending. In 2025, there is the potential for an upswing in the number of state-level bills focused on banks and lending criteria. This is based on the regulatory developments underway at the federal level, such as the SEC’s pause on the legal defense of its climate-related disclosures rule. This may be reinforced by the Republican majority in Congress largely unified behind the current administration’s policy agenda. If successfully enacted, any state-level regulations would impact the lending criteria that banks use to assess ESG risk in loan transactions. 

There are also indications that the new regulatory structure may compound the loss of interest among some US investors in environmental themes in recent years. Sustainalytics’ analysis of US shareholder resolutions uncovered a decline in support of environmental resolutions in the US market in 2023, and an even steeper decline in 2024.¹⁶ This data underscores the loss of support among US investors for environmental themes – a trend that is set to continue if state and federal initiatives progress along the same trajectory as witnessed in the first quarter of 2025. Fines and the termination of government contracts by state legislators for banks refusing to lean into high ESG risk industry financing may bring an additional dimension of financial risk to investors. This may lead to a steeper decline in support of environmental themes among US investors in 2025.

Possible Opportunities for Banks Stemming From Relaxed Regulation

Another key focus for regulators within this new environment appears to be the possible deregulation of digital assets such as cryptocurrencies.¹⁷ In January, the White House issued a presidential action to promote US leadership in digital assets and financial technology.¹⁸ This is seen by the administration as enabling the finance sector to focus on innovation and the advancement of its economic growth agenda. The FDIC, an agency created by Congress to maintain stability and public confidence in the US financial system, followed this action with a statement in February declaring that it was, “actively reevaluating [its] supervisory approach to crypto-related activities. This includes providing a pathway for institutions to engage in crypto- and blockchain-related activities while still adhering to safety and soundness principles.”¹⁹

This development may be positive for US banks’ product offerings and may enable them to diversify revenue sources, which have previously been curtailed by the SEC’s tendency towards regulatory enforcement actions on crypto activity. However, regulatory leniency towards cryptocurrencies could potentially increase exposure to money-laundering, sanctions and terrorism financing risks. 

The loosening of regulation may bring upsides for US banks in the short to medium term, such as the potential to improve a bank’s cost-to-income ratio with a reduction in expense-heavy remediation measures. It could also mean a decrease in regulatory fines. Fines and penalties on US banks have become a common cost item. Sustainalytics’ ESG Risk Ratings capture financial materiality associated with fines and remediation expenses as part of our Controversies Research product. US banks with high or severe risk controversies lie in the bottom quartile of the ESG Risk Ratings for their subindustry. 

Figure 4 highlights Wells Fargo as an example of how the lifting of severe enforcement actions by the current US administration could potentially impact the ESG risk profile of a US bank. The effect would be seen in improved management scores, shifting the bank from high risk to medium risk. That is, there would be approximately a 20% reduction in overall ESG risk. Also, the bank’s ranking would move from the bottom quartile of risk among the diversified banks subindustry, to squeeze into the lower end of the second quartile. In terms of a global comparison, Sustainalytics’ data show that US diversified banks are embroiled in the highest number of controversies. The data also show that the diversified banks subindustry has the most controversies out of all subindustries that Sustainalytics covers.

Figure 4. An ESG Risk Scenario Analysis on Wells Fargo: The Impact of Lifting Severe Regulatory Enforcement Actions 

^{Source: Morningstar Sustainalytics Controversies Research Data.}

Using Sustainalytics’ Controversies Research product data, we examined the fines imposed in the US on all constituents within Sustainalytics’ banks industry universe under the two previous administrations. The data show that the sum of fines imposed under the Biden administration (2021-2025) increased by 66% compared with those during the Trump administration’s first term (2017-2021). However, the number of fines imposed dropped, suggesting fewer, but harsher fines imposed under the Biden administration. 

Figure 5. Comparing Fines Imposed on Banks Under Trump’s First Term vs. the Biden Administration

^{Source: Morningstar Sustainalytics. Note: Data between January 20, 2017 - January 20, 2025.}

Uncertainty Ahead 

Considering the flurry of regulatory proposals already in the works at the federal level, it is not yet fully clear what the scope of the changes will be or how they will play out. What is clear is that banks in the US will continue to navigate a challenging environment, balancing short- and long-term risks and opportunities amid a changing US political climate. 

References

1. United States Federal Reserve. 2025. Federal Reserve Board announces it has withdrawn from the Network of Central Banks and Supervisors for Greening the Financial System (NGFS). January 17, 2025. https://www.federalreserve.gov/newsevents/pressreleases/bcreg20250117a.htm. 
2. United States Federal Deposit Insurance Corporation. 2025. FDIC Releases Documents Related to Supervision of Crypto-Related Activities. February 5, 2025. https://fdic.gov/news/press-releases/2025/fdic-releases-documents-related-supervision-crypto-related-activities. 
3. United States Securities and Exchange Commission. 2025. Acting Chairman Statement on Climate-Related Disclosure Rules. February 11, 2025. https://www.sec.gov/newsroom/speeches-statements/uyeda-statement-climate-change-021025. 
4. Gillison, D. Tracy, M. 2025. “Protest erupts after US consumer watchdog boss tells staff to stop work”. Reuters. February 10, 2025. https://www.reuters.com/world/us/acting-cfpb-chief-tells-all-staff-cease-any-work-tasks-2025-02-10/.
5. United States Consumer Finance Protection Bureau. 2025. “Reining in Repeat Offenders”: 2022 Distinguished Lecture on Regulation, University of Pennsylvania Law School. March 28, 2022. https://www.consumerfinance.gov/about-us/newsroom/reining-in-repeat-offenders-2022-distinguished-lecture-on-regulation-university-of-pennsylvania-law-school. 
6. Consumer Finance Protection Bureau. 2025. About The Director. January 31, 2025. https://www.consumerfinance.gov/about-us/the-bureau/about-director. 
7. Federal Deposit Insurance Corporation. 2025. List of Chairmen of the FDIC. January 20, 2025. https://www.fdic.gov/history/list-chairmen-fdic. 
8. Federal Reserve. 2025. About The Fed. https://www.federalreserve.gov/aboutthefed.htm. 
9. Office for Comptroller of the Currency. 2025. Rodney E. Hood Announced as Acting Comptroller of the Currency. February 7, 2025. https://www.occ.treas.gov/news-issuances/news-releases/2025/nr-occ-2025-9.html. 
10. Securities and Exchange Commission. 2025. Mark T. Uyeda Named Acting Chairman of the SEC. February 28, 2025. https://www.sec.gov/newsroom/press-releases/2025-29. 
11. Gayle, D. 2025. “Six big US banks quit net zero alliance before Trump inauguration”. The Guardian. January 8, 2025. https://www.theguardian.com/business/2025/jan/08/us-banks-quit-net-zero-alliance-before-trump-inauguration. 
12. Latham & Watkins. 2025. “The Tides Are Changing (Again) for US “Fair Access” and “Anti-Debanking” Laws.” January 7, 2025. https://www.lw.com/admin/upload/SiteAttachments/The-Tides-Are-Changing-Again-for-US-Fair-Access-and-Anti-Debanking-Laws.pdf. 
13. Latham & Watkins. 2025. “The Tides Are Changing (Again) for US “Fair Access” and “Anti-Debanking” Laws.” January 7, 2025. https://www.lw.com/admin/upload/SiteAttachments/The-Tides-Are-Changing-Again-for-US-Fair-Access-and-Anti-Debanking-Laws.pdf. 
14. Federal Deposit Insurance Corporation. 2025. Charting a New Course: Preliminary Thoughts on FDIC Policy Issues. January 10, 2025. https://www.fdic.gov/news/speeches/2025/charting-new-course-preliminary-thoughts-fdic-policy-issues. 
15. Office of the Comptroller of the Currency. 2025. Rodney E. Hood Announced as Acting Comptroller of the Currency. February 7, 2025. https://www.occ.gov/news-issuances/news-releases/2025/nr-occ-2025-9.html. 
16. Stewart, L. 2025. “Voting on ESG: A Gap Becomes a Gulf.” Morningstar Sustainalytics. February 6, 2025. https://connect.sustainalytics.com/voting-on-esg-a-gap-becomes-a-gulf. 
17. Lang, H., Prentice, C. 2025. “Trump's new SEC leadership poised to kick start crypto overhaul, sources say”. January 15, 2025. https://www.reuters.com/world/us/trumps-new-sec-leadership-poised-kick-start-crypto-overhaul-sources-say-2025-01-15. 
18. The White House. 2025. Strengthening American Leadership in Digital Financial Technology. January 23, 2025. https://www.whitehouse.gov/presidential-actions/2025/01/strengthening-american-leadership-in-digital-financial-technology. 
19. Federal Deposit Insurance Corporation. 2025. FDIC Releases Documents Related to Supervision of Crypto-Related Activities. February 5, 2025. https://fdic.gov/news/press-releases/2025/fdic-releases-documents-related-supervision-crypto-related-activities.