The Principles of Responsible Investment (PRI), a UN-supported international network of investors, has called a renewed focus on more sustainable investment strategies following Joe Biden’s win in the US presidential election.
Congratulating President-Elect Biden, the PRI days it is looking forward “with optimism” to the new administration’s engagement on environmental, social and governance (ESG) issues.
The PRI says that governance continues to be a central theme it is work. It adds: “Good governance mandates that every vote counts, and in the context of this election, we hope this principle is respected and that we see a peaceful and orderly transition of power to a new administration.”
It adds: “Investors in the United States—and around the world—are now looking closely at the new Biden administration and its domestic and international policy directions.
“The government and the private sector need to work together to tackle the pandemic, address climate change and to build back better with an economic recovery that includes developing a new social contract, creating green jobs and delivering economic prosperity for all.”
The PRI highlighted three main issues for the new administration: prioritising social issues, action on climate change and reversing the Trump-era rollback of ESG integration.
It says: “At a social level, the central issues of structural inequality, income disparity and racial inequality are major domestic challenges for the incoming administration. Raising the minimum wage to ensure that it’s a living wage, improving labour rights and wholesale reform of the health system to ensure access for all are amongst the basic starting points.”
When it comes to climate change the PRI called for the new administration to set a pathway to achieve net-zero emissions by 2050.
The PRI says that an inevitable policy response that is forceful and abrupt is gathering pace, undermining the value of high carbon investments and creating opportunities for green investments and jobs.
It welcomed Biden’s clear commitment to re-join the Paris Agreement on limiting climate change.
Following the Trump administration’s efforts in recent years to roll back progress on ESG investing, the PRI says the future standing of the US in the global movement towards responsible investing is one to watch.
At a domestic level, it says the integration of ESG considerations in investment policy and regulation has fallen behind in the last four years compared to progress in Europe and Asia.
The PRI called for the new administration to reverse the course that has been set by American regulators over the past few years. It points out that an executive order from President Trump in 2019 directed the Department of Labor (DOL) to review regulation of private retirement plan fiduciaries (or “ERISA fiduciaries”) with an eye towards promoting the oil and gas sector.
In response, the DOL proposed rules that, if finalised, would make it harder and costlier for ERISA fiduciaries to integrate ESG factors into their investment actions and participate in proxy voting aimed at improving corporate responses to investors’ demands on ESG factors.
The DOL itself acknowledges that ESG factors can create business risks and opportunities, yet the PRI claims it is actively trying to prevent investors from considering those factors in their investment decisions. It points out that 95 per cent of responses to this proposed rules change opposed it.
The PRI says another priority should be establishing mandatory ESG disclosure for publicly traded companies. It says investors need access to consistent, comparable data about material ESG factors in order to efficiently incorporate that data into their investment practices, and it would like to see the Securities Exchange Commission (SEC) mandate such disclosures, or Congress could direct them to institute these requirements.
The PRI says: “During the last four years, the Trump administration did a significant disservice to the standing of the US amongst global leaders on responsible investing, sustainability and climate action.
“Domestically, it favoured those voices and lobby groups who opposed transparency, accountability and investor actions to improve corporate behaviour.
“It has held back much of the change that is necessary for the financial system to be fit for purpose in the 21st century, where increasing expectations around corporate responsibility, social licence and impact have emerged.”
The PRI adds that the view that the financial system works solely to the benefit of itself and its actors, and not wider society has led to much of the divide that we see in America today, to growing inequality between the ‘haves’ and ‘have nots’.
“In a financial system that helps deliver supercharged profits and salaries for a tiny minority while minimum wages are unmoving and basic healthcare is an unaffordable mirage for so many, we cannot expect anything else but opprobrium and a landscape fertile for populism. The Biden administration can begin to turn the tide.”