Who the president is matters to sustainable investing.
One hundred days into Joe Biden’s presidency, his administration’s executive orders and agency actions have reinstated and advanced an environment that empowers sustainable investing. President Biden has also assembled a strong climate-change team and bestowed significant authority on it, including establishing a new White House Office of Domestic Climate Policy, headed by Gina McCarthy, and appointing former Secretary of State John Kerry to the U.S. National Security Council as special presidential envoy for climate.
All of this sets our children and grandchildren and wildlife up for a more secure future — but threats to sustainable investing remain.
Days 1–50: Making Sustainability Great Again
Rejoining the Paris Agreement. On February 19, the U.S. officially rejoined the Paris Agreement, a global framework to reduce climate change. With a provision for “making finance flows consistent with a pathway towards low greenhouse gas emissions and climate-resilient development,” the agreement should strengthen and support capital flows into sustainable investing.
Reactivating a $40 billion clean-energy loan program. On March 3, Secretary of Energy Jennifer Granholm announced that she was reactivating a dormant Obama-era program authorized to offer more than $40 billion in federal loans and loan guarantees to clean-energy startups and projects. During the Obama administration, the Department of Energy made over $35 billion in loans to 30 companies and in the process launched utility-scale solar as a private-sector-funded growth industry. Although the program was broadly successful, the performance of loan-guarantee recipients ranged from the incredible success of electric-car maker Tesla — now one of the largest publicly traded companies in the world — to the failure of solar company Solyndra. The program fell out of favor when Solyndra defaulted on a $535 million loan and was mostly dormant during the Trump administration.
Rejecting last-minute Trump administration rules. On March 10, the Department of Labor announced that it would not enforce two midnight Trump administration rules under the Employee Retirement Income Security Act (ERISA), which establishes minimum standards for private-sector employee-benefit plans. The rules — which would have limited the ability of retirement funds to invest on the basis of environmental, social, and governance (ESG) considerations or to prioritize ESG issues in proxy voting and strategic engagement — were a response to President Trump’s executive order to review all regulations that burden fossil-fuel companies.
Instead, the Department of Labor plans to “craft rules that better recognize the important role that environmental, social and governance integration can play in the evaluation and management of plan investments, while continuing to uphold fundamental fiduciary obligations,” according to a statement from Ali Khawar, the principal deputy assistant secretary for the Employee Benefits Security Administration.
Days 43–100: Moving Toward a More Sustainable Economy
The Securities and Exchange Commission examines climate and ESG. On March 3, the SEC’s Division of Examinations announced that its 2021 priorities would include heightened focus on climate-related risks for investment advisers. Five weeks later, the division issued a risk alert encouraging ESG funds and advisers to gauge whether their marketing claims, disclosures, and other public statements about ESG are accurate and consistent with internal firm practices. The risk alert also encouraged firms to document and maintain records of their ESG investing processes, to implement ESG investing consistently throughout their businesses, to adequately address ESG investing in their policies and procedures, and to subject ESG investing to appropriate oversight by compliance personnel.
The risk alert echoed elements of the Operating Principles for Impact Management, the most widely accepted credible minimum standards for what constitutes impact investing, in pushing fund managers to explain how they evaluate investments using goals established under global ESG frameworks. This suggests that the $715 billion impact investing market — where investors are held to a higher environmental and social standard than simply considering ESG issues in investment decisions — is indeed influencing the much larger sustainable investing market, which is projected to hit $38 trillion by year-end.
The SEC launches the Climate and ESG Task Force. On March 4, the SEC announced the formation of the first-ever Climate and ESG Task Force within the Division of Enforcement. The task force focuses on identifying climate- and ESG-related misconduct, including detecting any material misstatements or gaps in issuers’ disclosures of climate risks under existing rules and assessing compliance and disclosure issues relating to ESG strategies.
A review of previous SEC task forces, such as the Retail Strategy Task Force and the Financial Reporting and Audit Task Force, suggests that the Climate and ESG Task Force could act quickly and generate investigations and enforcement actions against individuals and companies that may have engaged in ESG-related misconduct.
The SEC requests comment on climate disclosure. On March 15, acting SEC Chair Allison Herren Lee issued a statement requesting public comment on climate disclosure. The regulator sought responses on what data and metrics are most useful, what the SEC could learn from existing voluntary frameworks, and whether there should be a single set of global standards, among other issues.
This request for public comment advanced the SEC’s January 2010 interpretive guidance that legislation and regulation, international accords, business trends, and physical impacts of climate change are examples of instances where climate change may create disclosure requirements. Although this Obama-era guidance was progressive at the time, it was not a binding rule. In crafting new climate-related disclosure requirements, the SEC can benefit from how the EU taxonomy for sustainable activities, the Financial Stability Board’s Task Force on Climate-related Financial Disclosures, and other initiatives have advanced collective thinking on climate change since 2010.
Biden sets new emission-reduction targets. On April 22, at the Leaders Summit on Climate that Biden convened, he announced that the U.S. would target reducing emissions by 50 to 52 percent below 2005 levels by 2030. This 2030 target represents an intermediate milestone in the larger goal of reaching net-zero emissions economy-wide no later than 2050 as part of the Paris Agreement.
An international climate finance plan is unveiled. Also on April 22, the Biden administration released the climate finance plan it had called for in its January 27 executive order. Plan details included doubling annual public climate finance to developing countries relative to Obama’s second term and enhancing interagency coordination on its deployment, mobilizing private finance internationally, ending international official financing for carbon-intensive fossil-fuel-based energy, supporting the flow of capital toward low-emissions climate-resilient pathways, and measuring and reporting on international climate finance. In aggregate, the plan represents the alignment of U.S. foreign policy with the low-carbon transition.
Biden prepares an executive order on climate-related financial risk. On April 14, Politico reported that the Biden administration had drafted an executive order asking federal agencies to incorporate climate risk into how they supervise housing; power and energy; banking and insurance; agriculture; and federal lending, purchasing, and contracting. Specifically, the draft executive order guides White House climate and economic advisers to work with the Office of Management and Budget on a government-wide strategy to measure, mitigate, and disclose climate risks facing federal agencies, including risks from natural disasters and rising sea levels. Although the final version of this executive order has not yet been released, it is clear that the Biden administration is aligning with the spirit of the Task Force on Climate-related Financial Disclosures by seeking to more effectively evaluate climate-related risks and make better-informed decisions on where and when to allocate capital.
Days 101 and Beyond: Facing Threats to Sustainable Investing
At least two of Trump’s three Supreme Court appointees pose risks to the Biden administration’s plans for the transition to a sustainable economy.
Justices Neil Gorsuch and Brett Kavanaugh both oppose the Chevron deference, the doctrine that requires judges to defer to administrative agencies’ interpretations of federal law where the law is ambiguous and the agency’s position is reasonable. (Justice Amy Coney Barrett’s scholarship contains little direct evidence of what she thinks about Chevron.)
Limiting the ability of the housing, banking, and agriculture regulators to incorporate climate risk into how they lend federal funds and supervise major sectors of the U.S. economy could thwart the transition toward a sustainable economy. So could preventing the Internal Revenue Service, the Department of Labor, and other administrative agencies from writing enabling rules for sustainable investing.
The world is watching whether the system of checks and balances will support or slow the growth of the sustainable assets under management in the U.S. and our transition toward a sustainable economy more broadly.
In the meantime, these advances in the transition toward a sustainable economy during the Biden administration’s first 100 days mitigate risks for planet and people alike.
Bhakti Mirchandani is director of responsible investing at Trinity Church Wall Street and teaches an impact investing course in Columbia University’s Masters in Sustainability Management Program.
The opinions expressed in this article are the author’s and do not necessarily reflect the official policy or position of any other agency, organization, employer, or company.
