A New Era for Sustainable & Impact Investing? Predictions for the Biden Administration

January 14, 2021

 Download PDF

Biden’s Boost to Sustainable & Impact Investing 

With the two Senate seats in Georgia being won by Democratic candidates, there is greater clarity surrounding President-elect Joseph R. Biden’s ability to execute on campaign promises, including those related to sustainable and impact investing. After a year of continued growth in investor interest and allocation,1 we expect this outcome to have a potentially positive influence on our three key 2021 sustainable and impact investing themes:

Even with compromises in play, a Democratic-controlled Congress for the first time in 10 years offers enormous potential to carry out Biden’s agenda, via legislation, leadership appointments and executive orders.

Key Observations

Observation 1 — Harnessing Climate Change

While much of the world’s attention was consumed by COVID-19 in 2020, the California wildfires served as a reminder that aggressive action is needed to curb the most damaging aspects of global temperature rises.2 Biden’s prioritization of climate issues is clear, as indicated by his $2 trillion climate change proposal, which includes renewable energy infrastructure spending, subsidies for electric vehicles and cuts for traditional coal. Further, Biden’s Cabinet appointees suggest a commitment to environmentally friendly appointments to the U.S. Department of Energy, the Environmental Protection Agency (EPA), the National Economic Council (NEC), and the first Cabinet-level “Climate Czar.” Finally, his early 2021 executive orders are expected to include a pledge to rejoin the Paris Agreement, and a requirement of public disclosure for all U.S. public companies on carbon footprint and climate policies. These moves collectively would benefit companies operating in green sectors, further increasing investor interest, while improving the data available to do so in practice.

Observation 2 — The Rise of S in ESG

During a year defined by a pandemic, a recession and protests for racial equality, corporations were expected to brandish their commitment to stakeholder capitalism3 through policies and actions supporting sick leave, severance pay, and diversity and inclusion programs. In line with the growing prominence of the “S,” or social pillar of environmental, social and governance (ESG) investing, the Biden administration has committed to a robust racial equity plan and broad levers to facilitate equitable economic growth. Specifically, the Biden team has proposed spurring public-private investment into small business opportunities, establishing a housing plan that promotes homeownership for Black, Brown and Native families, and building a diverse Cabinet.4 Finally, as part of a broader push for increased data disclosure, we expect the Biden administration to advocate for companies to issue more granular data around gender and racial representation, as well as on pay equity, promotion and retention rates,5,6 which would further enrich data availability.

Observation 3 — The ESG Regulators Are Coming

While sustainable and impact investing has seen significant growth over the past several years,1 “greenwashing” by companies and investment managers, as well as confusion over various terminologies, and lack of clarity on fiduciary fit have prevented investors from committing even more capital.7 The Biden administration is expected to advocate for increased standardization and regulation, including via a potential reversal of recently enacted Department of Labor guidance that prohibits inclusion of ESG strategies in 401(k) plans, a refreshed ESG Disclosure Simplification bill (the prior version failed to pass in 2019), and SEC appointments to increase scrutiny of ESG disclosures. In aggregate, these actions may address key challenges holding some asset owners back from this space.

We will be issuing additional analysis in 2021 on how the administration’s actions are playing out. In the meantime, please contact us to learn more about our capabilities. 
 

1 U.S. SIF Foundation. Report on US Sustainable and Impact Investing Trends 2020. https://www.ussif.org/files/US%20SIF%20Trends%20Report%202020%20Executive%20Summary.pdf?1615276398

2 Hays, Mark; Wilson, Amy. “Climate Change: Harnessing the Power of the Capital Markets.” Glenmede. September 2020. https://go.glenmede.com/climate-change-harness-power-of-public-capital-markets 

3 Goodman, Peter S. "Stakeholder Capitalism Gets a Report Card: It’s Not Good.” The New York Times, September 22, 2020. https://www.nytimes.com/2020/09/22/business/business-roudtable-stakeholder-capitalism.html  

4 “With historic picks, Biden puts environmental justice front and center.” The Washington Post, December 17, 2020. https://www.washingtonpost.com/climate-environment/2020/12/17/deb-haaland-interior-secretary-biden/

5 “Why Pay Data Matter in the Fight for Equal Pay.” Center for American Progress. March 2, 2020. https://www.americanprogress.org/issues/women/reports/2020/03/02/480920/pay-data-matter-fight-equal-pay/

6 Enyart, Julia. “Gender Lens Investing in Public Markets: It’s More Than Women at the Top.” Glenmede. October 2020. https://go.glenmede.com/gender-lens-investing-in-public-markets

7 Segal, Mark. “CFA Institute Study: ESG Interest Growing, but Improved Standards Needed; Client Demand a Major ESG Driver.” ESG Today, December 2, 2020. https://www.esgtoday.com/cfa-institute-study-esg-interest-growing-but-improved-standards-needed-client-demand-a-major-esg-driver/

 

This article is intended to be an unconstrained review of matters of possible interest to Glenmede Trust Company or Glenmede Investment Management clients and friends and is not intended as personalized investment advice. Advice is provided in light of a client’s applicable circumstances and may differ substantially from this presentation.  Any opinions, expectations or projections expressed herein are based on information available at the time of publication and may change thereafter, and actual future developments or outcomes (including performance) may differ materially from any opinions, expectations or projections expressed herein due to various risks and uncertainties. Information obtained from third parties, including any source identified herein, is assumed to be reliable, but accuracy cannot be assured. In particular, information obtained from third parties relating to “ESG” and other terms referenced in this article vary as each party may define these terms, and what types of companies or strategies are included within them, differently. Glenmede attempts to normalize these differences based on its own taxonomy, but those efforts are limited by the extent of information shared by each information provider. Definitional variation may therefore limit the applicability of the analysis herein. Any reference herein to any data provider or other third party should not be construed as a recommendation or endorsement of such third party or any products or services offered by such third party.  Any reference to risk management or risk control does not imply that risk can be eliminated. All investments have risk. Clients are encouraged to discuss the applicability of any matter discussed herein with their Glenmede representative.