The growth of ESG (environmental, social & governance) investing will continue regardless of the US presidential election, according to MainStreet Partners’ Simone Gallo, even if only one candidate believes that better social and environmental practices are a priority.
Both candidates for the US presidential election have very different opinions and priorities when it comes to sustainability in any form.
Incumbent Donald Trump has been unashamedly vocal about his lack of support for climate change issues, best demonstrated by his withdrawal from the Paris climate agreement within his first year in office.
Conversely, Democrat candidate Joe Biden has promised to re-commit the US to the Paris agreement and has pledged to support social and climate change legislation while in office and made plans for a $2trn ‘Green New Deal’.
The ‘Green New Deal’ aims to make extensive investments into infrastructure, auto-industry, power sector, housing and other areas aiming to deal with climate challenges through job creation.
It might, therefore, be assumed that the current momentum in sustainable and ESG investing –accelerated this year by the Covid-19 pandemic – will accelerate further with a Biden win.
But MainStreet Partners managing director Gallo said this is not the case, noting that interest in ESG investing is growing regardless of who sits in the White House.
He said: “There are many commentators saying ESG and sustainability growth in the US is dependent on the result of the upcoming US election, we disagree.
“The current US administration has shown a doubtful attitude towards ESG, with limited support of the UN’s Sustainable Development Goals and an ongoing push for deregulation, particularly on climate considerations.
“Yet Donald Trump’s presidency has coincided with an increase in ESG assets under management in the US.”
The latest Broadridge Data and Analytics report found that net-flows into US long-term responsible funds quadrupled during 2019 to $20bn. It also found that these flows had accelerated further during the first half of 2020, reaching $21bn.
As such, ESG assets in the US will reach $300bn by the end of 2021.
“So even if Trump wins another term, we don’t think public interest in ESG will wane,” Gallo said. “The current global shift in attitude regarding ESG matters does not have geographical or political limits.”
Indeed, this growth in ESG and sustainable investment has been reflected at a global level. According to the latest data from the Investment Association (IA), responsible investment funds have seen net inflows of £4.9bn this year (to end-August), with total funds under management standing at £36.1bn.
“Pressure from asset owners concerned about the long-term impact of issues such as climate change and economic inequality will continue to drive a move towards ESG investment products,” Gallo explained.
“Asset managers are also eyeing the upcoming $30trn asset transfer from baby boomers to millennials, who say that they want to invest in accordance with ESG mandates.”
While the push for more sustainable investment from investors may continue regardless of the election result, Gallo admits that federal support will vary with the result.
In the case of a Trump win Gallo said there’s unlikely to be any changes to the administration’s ESG policies from the first term.
“In fact, the administration may create new regulations that discourage fund managers from investing in ESG products, including adoption of the US Department of Labor’s proposed rule that would make it harder for ESG funds to be included in 401k and pension plans,” he said.
However, if Biden wins, Gallo said ESG momentum could go “into overdrive”.
“Under a Biden administration, the evolution of the ESG investing market will accelerate,” he said. “The former vice president embraces new corporate governance standards and the creation of mandatory disclosure requirements.
“Under the steam of a Biden presidency, we would expect to see increased pressure to standardise issuer and asset manager disclosures.”
He continued: “We would also expect enhanced transparency requirements regarding public companies’ environmental impacts, since Biden has introduced a $2trn plan to tackle climate change and a pledge to achieve net-zero emissions through the ‘greening’ of energy, infrastructure, transportation, agriculture and more.
“Finally, we would expect a Biden administration to strengthen the country’s contributions to the sustainable development goals over the next decade, re-asserting US leadership in this arena.
“Biden is likely to re-enter the Paris Accords on climate and strengthen adherence to the UN’s guiding principles on business and human rights.”
As such, Gallo thinks that ESG and sustainability is on course to remain part of the US market and day-to-day life with either presidency.