U.S. State ESG Disclosure Policy Diffusion After Federal Retreat: A Legislative Text Similarity Case Study

• In Event: Federalism and Policymaking

Abstract

Background. The withdrawal of the U.S. Securities and Exchange Commission (SEC) from governing corporate climate-related nonfinancial disclosure has not halted regulatory momentum in this policy area, it has redirected it. Following California's leading climate accountability laws (SB 253 and SB 261), a wave of state-level legislative proposals for environmental, social, and governance (ESG) disclosure has been observed across the United States. This proliferation raises questions about the nature of policy diffusion in a politically polarized federalist system, particularly when federal inaction creates a governance vacuum that subnational actors work to fill.

Research Question. This study asks: how and why is ESG corporate disclosure policy spreading across U.S. states, and what is the source of legislative language driving that spread? Specifically, it interrogates whether observed similarities across state proposals reflect conventional interstate diffusion from California or a less-examined mechanism rooted in global standards integration.

Methods. A multiple case study design was employed, conducting pairwise comparisons of six state legislative proposals alongside two California reference laws. A text-as-data corpus was constructed from primary legislative documents. Both qualitative review and quantitative natural language processing (NLP) techniques, including objective document similarity scoring, were used to systematically evaluate potential textual, i.e., policy object, relationships across cases.

Findings. Results reveal a relatively high degree of technical vocabulary overlap across all state cases examined, with quantitative similarity scores showing statistically significant variation between states and supplemental reference documents. Notably, direct phrase copying was relatively low. This pattern of high conceptual and terminological convergence without verbatim replication, is interpreted as evidence that the origin of legislative language lies not primarily with California, but at the level of international and transnational ESG standards and governance regimes. The study identifies this as a process of integration by reference, in which global normative frameworks are absorbed into subnational legislative drafting.

Implications. These findings carry significant implications for understanding how U.S. states navigate ESG governance during a period of federal retreat. While conventional diffusion mechanisms such as emulation and normative pressure between states are likely present, this research argues that transnational soft policy is hardening through a global-to-subnational channel largely overlooked in the policy diffusion literature. As partisan contestation over ESG intensifies and the current federal political regime eschews this domain, understanding how Democrat-led states are anchoring disclosure policy in global standards, rather than federal precedent, becomes essential for scholars and practitioners navigating this rapidly shifting landscape of emerging ESG-related policies, some of which pertaining to topics beyond corporate climate disclosure.

Author

• Michele J Aquino, American University
  Presenting Author