Fiona Reynolds, the CEO of the United Nations-backed Principles for Responsible Investment (PRI), is calling on the incoming Biden administration to reverse the rollback of environmental, social, and governance (ESG) investing progress instituted under the Trump administration. This includes rejoining the Paris Agreement and nixing proposed Department of Labor (DOL) rules to curb ESG investing.
“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,” Reynolds wrote in a blog post on PRI’s website. “The new administration must reverse the course that has been set by American regulators over the past few years.”
Reynolds said investors worldwide will be looking closely at what the Biden administration will do, and urged the incoming government and the private sector to work together to address climate change, fight the pandemic, and create green jobs to help speed up economic recovery.
She said the new administration needs to address climate change in its economic policies and create a plan to achieve carbon net-zero by 2050. Reynolds said reaching net-zero requires a focus on six key areas: climate ambition and governance, zero carbon power, buildings, road transport, industry, and land use.
“Beyond reversing the tide of anti-ESG regulation from the Trump administration, US policymakers will need to advance new policies that support sustainable investing and strengthen accountability, good governance, and shareholder rights,” Reynolds said.
Reynolds said that through the Congressional Review Act, legislators will have the opportunity to overturn a controversial new DOL rule that was spurred by a 2019 executive order from Trump that stymies ESG investing. She also said Congress should examine recent Securities and Exchange Commission (SEC) rules that make it more difficult for investors to participate in proxy voting to advance ESG goals.
“The DOL itself acknowledges that ESG factors can create business risks and opportunities, yet it is actively trying to prevent investors from considering those factors in their investment decisions,” Reynolds said. “It’s no wonder that more than 95% of public comments on the proposed rule opposed it, including one from the PRI.”
She also said the Biden administration should prioritize establishing mandatory ESG disclosure for publicly traded companies.
“Investors need access to consistent, comparable data about material ESG factors in order to efficiently incorporate that data into their investment practices,” she said. “The SEC could mandate such disclosures, or Congress could direct them to institute these requirements.”
Additionally, US regulators should require pension and investment fiduciaries to integrate material ESG factors into their investment processes, she said, adding that “laws and regulations from the DOL and SEC need to be updated to eliminate any uncertainty that fiduciaries have an obligation to consider ESG issues.”
And, at the international level, Reynolds said US needs to re-join the Paris Agreement, and that climate action at the G7 and G20 levels need to be revitalized as it has been “effectively stifled” since 2016.
“For the last four years, the Trump administration did a significant disservice to the standing of the US among global leaders on responsible investing, sustainability, and climate action,” she said.
Reynolds also urged the US to join the more than 70 regulators from around the world that have formed the Network for Greening the Financial System to advance a sustainable financial sector. Reynolds said the inclusion of the US into the group will help central banks and financial regulators accelerate efforts to address systemic climate risks.
“The Biden administration can begin to turn the tide,” Reynolds said. “With a strong commitment from day one … there are real opportunities to make American finance great again.”