US SIF: The Forum for Sustainable and Responsible Investment just released a set of policy recommendations for the next presidential administration. The recommendations aim to help achieve a more just and sustainable economy and provide a framework through which the private sector can contribute alongside government’s leadership. I attached the full set of recommendations to this email.
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Executive Summary
US SIF: The Forum for Sustainable and Responsible Investment is the leading organization in the United States advancing sustainable investing across all asset classes. One of our key strategies for creating a more just and sustainable economy is engaging in public policy.
The United States is currently facing multiple large-scale problems. The coronavirus pandemic, racial injustice, economic inequality and climate change are crises that require urgent government action as well as meaningful private sector responses.
Sustainable investors have addressed critical environmental, social and governance (ESG) issues for decades. Sustainable investment strategies are used by a broad range of investors and have grown rapidly, accounting for more than one in four dollars under professional management.
Sustainable investors engage with companies to secure more sustainable policies and practices in those companies. Recently, there have been multiple developments focused on moving companies from a shareholder primacy model to one focused on multiple stakeholders.
The next presidential administration has the opportunity to further catalyze these private sector trends and to set new rules of the road. Thus, our first recommendation is to create a White House Office of Sustainable Finance and Business.
Our recommendations, if implemented, will help achieve a more just and sustainable economy and provide a framework through which the private sector can contribute alongside government’s leadership.
1) CREATE A WHITE HOUSE OFFICE OF SUSTAINABLE FINANCE AND BUSINESS
- The White House Office of Sustainable Finance and Business will be a focal point in the administration to advance the continued growth of sustainable investment and accelerate the shift from a shareholder-centric company model to a multi-stakeholder model.
2) APPOINT LEADERSHIP AT THE SEC AND DOL WITH SUSTAINABLE INVESTMENT EXPERTISE
- While there are multiple agencies that interact with the field of sustainable investment, the most critical ones, to date, have been the Securities and Exchange Commission and Department of Labor. The SEC Chair, Commissioners and division directors as well as the Secretary of Labor and the Assistant Secretary for Employee Benefits Security Administration (EBSA) should be knowledgeable about sustainable investment and use of ESG data.
3) THE SEC SHOULD TAKE ACTION ON THE FOLLOWING POLICIES
- Enhance sustainable investment expertise inside the SEC by creating an external Advisory Committee to provide guidance and recommendations on current ESG trends.
- Create a new sustainable investment advisor position in the office of the SEC Chair who will advise division leadership and Commissioners.
- Mandate public company reporting of environmental, social and governance (ESG) issues.
- Reverse regulatory action limiting shareholder proposals.
- Reverse regulatory action hindering access to independent proxy advice.
- Reverse staff interpretations or legal bulletins weakening the ability of shareholders to file resolutions.
4) THE DOL SHOULD TAKE ACTION ON THE FOLLOWING POLICIES
- Work with Congress to amend the ERISA law so that ESG considerations and proxy voting are permissible in retirement plans governed by ERISA and are recognized as part of a plan administrator’s fiduciary duty.
- Reverse regulatory action limiting the inclusion of ESG factors in retirement plans.
- Reverse regulatory action discouraging retirement plan fiduciaries from proxy voting.
5) THE FEDERAL THRIFT RETIREMENT BOARD SHOULD ACCELERATE IMPLEMENTATION OF A MUTUAL FUND WINDOW
- Encourage the Federal Thrift Retirement Investment Board to accelerate the implementation of the legislatively authorized mutual fund window option and include one or more sustainable investment options.
6) WORK WITH CONGRESS TO APPROPRIATE ADDITIONAL FUNDS FOR THE COMMUNITY DEVELOPMENT FINANCIAL INSTITUTIONS (CDFI) FUND
- Accelerate the powerful work of CDFIs by providing $1 billion in CDFI Fund emergency grants in the next COVID relief legislation and annually each year going forward.
7) TAKE ACTION TO ADDRESS THE CLIMATE CHANGE CRISIS
- Re-join the Paris Agreement and position the United States as a climate change leader.
- Create a new position of sustainable finance liaison at the EPA.
- The Federal Reserve should join the Network for Greening the Financial System.
- End fossil fuel subsidies.
- Embed environmental justice in climate crisis solutions.
- Reverse regulatory changes to the Clean Air Act, Clean Water Act and National Environmental Policy Act.
8) TAKE ACTION TO ADDRESS ECONOMIC INEQUALITY
- Enact a minimum wage of at least $15 per hour and mandate paid sick leave.
Introduction
The next administration faces multiple crises. The coronavirus pandemic, racial injustice, economic inequality and climate change are challenges that require urgent action by the federal government and meaningful responses by the private sector.
Mobilizing the private sector can be achieved, in part, by making it the policy of the next administration to support sustainable investment and encourage the development of a stakeholder-centric approach to managing companies.
Sustainable investment1 has become a core strategy for investors all over the world. Interest in and assets flowing to sustainable investment have exploded in the last decade. Since 1995, when the US SIF Foundation first measured US sustainable investment assets at $639 billion, assets have increased 18-fold, at a compound annual growth rate of 13.6 percent. From 2016 to 2018 alone, assets grew from $8.7 trillion to $12.0 trillion, a 38 percent increase.i More than 25 percent of all professionally managed assets in the United States consider environmental, social and governance (ESG) factors.
Globally, sustainable investing assets stood at $30.7 trillion at the start of 2018, a 34 percent increase in two years.ii The European Union, Australia, Canada, the United Kingdom and other countries have created sustainable finance plans. Many of the world’s largest asset managers have signed on to the Principles for Responsible Investment. The notion that fiduciary duty requires the incorporation of ESG issues is increasingly mainstream.
Sustainable investors incorporate ESG issues into their investment processes to create competitive financial returns, generate social and environmental benefits, manage risk and fulfill fiduciary duties.
ESG issues include inequality, climate change, human rights, equal employment and diversity, sustainable agriculture, executive pay and anti-corruption. Sustainable investors were among the early voices urging corporate action and public policies to address the climate crisis. This year, they have spoken out on the coronavirus and racial injustice crises.iii
As shareholders, sustainable investors regularly engage with public companies about ESG issues, helping them improve their sustainability performance and mitigate negative impacts. Through the proxy process and by submitting resolutions that all shareholders vote on at company annual general meetings, they focus management attention on ESG issues.
Sustainable investors have also invested in underserved communities through community development banks, credit unions and loan funds in the United States and through small business lending and microfinance funds abroad. They have developed critical standard-setting organizations and influenced public policy.iv They have challenged the assumption that short-term shareholder return is the key relevant outcome for companies and advocated for a focus on a broader group of stakeholders.
In short, sustainable investors are leading the way towards a more sustainable and equitable society. As a result of multiple influences, including investor engagement, academic research and consumer pressure, corporations have embedded more sustainable business practices. One indication of this is that 90 percent of S&P 500 companies published sustainability reports in 2019, up from 20 percent in 2011.v
Additionally, corporations are reconsidering the emphasis on short-term shareholder returns as their central priority. Recently, several organizations, including the Business Roundtable (BRT) and the World Economic Forum, have voiced support for moving from a shareholder-centric company model focused on short-term stock returns to a more inclusive model balancing the interests of workers, customers, communities and the environment with those of shareholders.vi This model is generally referred to as stakeholder capitalism.
While there is significant debate about whether the signatories of the BRT’s Statement on the Purpose of a Corporationvii have started to move to a stakeholder model, the existence of the Statement invites sustainable investors, consumers and, most importantly, government, to insist that these commitments be made real.
In another sign of a shift in the expectations of companies, the number of B Corporations in the United States, which are legally required to consider the impact of their decisions on their workers, customers, suppliers and communities, has grown from 110 to 3,500 over the past decade.
The dramatic growth in sustainable investment and the interest in shifting to stakeholder capitalism creates an opportunity for the next administration to further catalyze these trends and to set new rules of the road.
And while the federal government must lead, the government should also set high expectations for the private sector and advance legislation and regulations that lead to a more sustainable private sector.
Policies that support sustainable investment’s continued growth will help ensure that capital aligns with broader policies aimed to address social and economic inequality and climate change.
US SIF offers the following recommendations to help achieve a more just and sustainable economy.
Read the full article here by US SIF
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