FLASH FRIDAY: Biden’s Green Wave

FLASH FRIDAY is a weekly content series looking at the past, present and future of capital markets trading and technology. FLASH FRIDAY is sponsored by Instineta Nomura Company.

The release of the US SIF Foundation’s biennial Report on US Sustainable and Impact Investing Trends showed that sustainable investing assets now make up $17.1 trillion, or one third, of the total US assets under professional management. This represents a growth rate of 42% in the past two years, which should accelerate under President-elect Biden.

Lisa Woll, chief executive of the US SIF Foundation, said in a briefing this week that she expects the new administration to reverse regulations from the Department of Labor and the US Securities and Exchange Commission that made environmental, social and governance investing more difficult. 

Last year President Trump issued an executive order directing the Department of Labor to review regulation of private retirement plan, or ERISA, fiduciaries. The department proposed a rule preventing the plans from investing in ESG vehicles unless they represented “economic risks or opportunities that a qualified investment professional would treat as material economic considerations under accepted investment theories” which met opposition from across the fund management industry. 

The Securities Exchange Commission also recently changed the “shareholder proposal rule”  by raising the ownership thresholds required to file and to resubmit proposals, making it harder for investors to raise ESG issues, which was also condemned by investors. Research from The Council of Institutional Investors found that the SEC’s new thresholds would have more than doubled the number of excluded governance proposals between 2011 and 2019.

Fiona Reynolds, chef executive of the United Nations-backed Principles for Responsible Investment, said in a blog that in addition to reversing the tide of the Trump administration’s anti-ESG regulation, the US will need new policies that support sustainable investing and strengthen accountability, good governance and shareholder rights.

There are signs of progress before the new administration takes over in January. The Federal Reserve has asked to join the Network for Greening the Financial System, a group 75 international regulators looking at how the financial system can mitigate against climate risk and become more sustainable. The Hill reported this month that the Fed’s latest financial stability report acknowledged the risks of climate change by noting that storms, floods, droughts, or wildfires, can quickly alter the value of real or financial assets.

The predicted blue wave of the Democrats taking the Senate has not materialized but the Biden administration could lead to a green wave as the US catches up with its international peers on trying to build a more sustainable financial system.