Analysis: Sustainable investing advocates hope for friendlier U.S. rules if Biden wins

In this news, we discuss the Analysis: Sustainable investing advocates hope for friendlier U.S. rules if Biden wins.

NEW YORK / BOSTON (Reuters) – Progressive groups and investors hope Democratic presidential candidate Joe Biden can win on Tuesday and quickly end Trump administration rules that stifle their ability to pick stocks using factors environmental, social or governance, setting up a renewed fight with the corporate groups that supported the changes.

More than a dozen lobbyists, investors and political experts have said that a Biden victory could boost U.S. growth in environmental, social and governance (ESG) investments, which lags far behind Europe, and which was further stranded as officials appointed by Trump crafted financial rules targeting shareholder votes and pension fund allocations.

ESG investing allows investors to earn more liquidity, thanks to studies showing superior performance.

But rules from the Securities and Exchange Commission (SEC) and Trump’s Department of Labor put the United States at odds with major investors and still behind European funds, which held 82% of the world’s $ 1.26 trillion total. dollars of ESG assets in the third quarter of 2020, according to Morningstar. US funds held 14%.

Democrats are promoting so-called ESG investment strategies as a way to pressure companies to tackle climate change, wealth inequality and racial justice issues. If Biden takes the White House, investors expect him to prioritize aggressive reforms.

“The Trump administration and its regulators have been ideologically anti-ESG and anti-climate from the start,” said Dennis Kelleher, chairman of the progressive think tank Better Markets.

“It will change dramatically if Biden wins. His administration will prioritize the fight against climate change and will also boost ESG disclosure and promotion.

In July, the SEC imposed new restrictions on proxy advisory firms that recommend how investors should vote in corporate elections. Critics of these companies said they had accumulated too much power over the voting process and needed to be brought under control.

In September, the SEC increased shareholder requirements for submitting shareholder proposals, making it more difficult for advocates to get motions on corporate ballots. The agency said the rules needed to be modernized.

The Labor Department finalized a rule on Friday that prohibits certain fund managers from investing in companies based on environmental or social factors, unless they can show an economic reason to do so. A similar rule on proxy voting is underway. The proposals cover billions of dollars in retirement accounts. [nL1N2HL2DZ]

The American Chamber of Commerce, the nation’s most powerful trading group, said in a note last month that the rules showed its campaign for policies that benefit shareholders while opposing special interest activists “bore down upon its fruits ”.

But investors and unions lambasted the changes.

Together, they place “limits on the ability of investors to hold companies accountable,” said Kyle Seeley, head of corporate governance for pension funds overseen by the New York State Comptroller.

If Democrats win the US Senate, they could overturn the measures using a law that allows a new Congress to overturn freshly inked rules. If Republicans retain their majority in the Senate, Biden could choose new agency heads who review the rules or adopt compensatory measures, policy experts have said.

Chief among them would be new rules forcing companies to publish ESG reports and disclosures, which Democratic SEC Commissioner Allison Lee has pleaded. Lee, who opposed the SEC changes, will likely be the acting SEC chairman if Biden wins.

Mindy Lubber, chief executive of sustainability group Ceres, said her group has spoken to the Biden campaign about introducing such disclosures, as well as regulations requiring banks to test their balance sheets by depending on climate-related risks. She added that she expected corporate groups to fight any effort to reverse the changes in the SEC and the Labor Department.

Lee and Biden’s campaign did not immediately respond to a request for comment.

DEEP POCKETS

Since the 2009 financial crisis, major investors have focused more on executive compensation and environmental issues, prompting a backlash from oil majors including ExxonMobil Corp XOM.N and Chevron CorpCVX, which have had to contend with pressure from investors to explain how climate change could hurt their businesses.

Oil companies have for years underperformed other industrial sectors and the S&P 500.

The oil giants and other deep-pocketed groups, such as the House and the National Manufacturers Association (NAM), have lobbied Washington for SEC rules for several years, according to three regulatory sources familiar with the subject, several lobbyists, and public records and letters.

As the SEC began exploring rule changes in 2018, for example, the House and NAM launched a six-figure ad campaign and a social media blitz claiming that the proxy advisers had harmed retirees and were giving away politically motivated advice, claims these companies deny.

The House also pushed the Labor Department to make changes, according to three other sources and public letters.

Exxon declined to comment. A spokesperson for Chevron said the limits on shareholder proposals are “justified” and the company aims to be transparent and responsive on ESG matters.

The labor department made no comment.

A spokesperson for the SEC said its rules improve transparency and “fiduciary and disclosure obligations to shareholders” without materially altering their ability to access proxy advice or get proposals on the ballot.

The House and the Manufacturers ‘Association said SEC and Labor Ministry rules increase transparency around the investment process and protect workers’ pensions from the political whims of interest groups.

For these reasons, said Tom Quaadman, a House executive, the rules resonate with both Republicans and Democrats. He said he expects some moderate Democrats to oppose an attempt to revise them.

“We will be ready to defend the rules if they are challenged,” said Charles Crain, director of NAM.

Edited by Michelle Price; Additional reports by Simon Jessop, Trevor Hunnicutt and Katanga Johnson; Edited by David Gregorio

Original © Thomson Reuters

Originally posted 2020-11-02 17:56:14.

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