Washington Commentary - ESG outlook

As President Joe Biden moves into the Oval Office, the typical buzzwords of the presidential transition are popping up everywhere. Biden’s “No Malarkey” bus tour message has been replaced by “Build Back Better.” His Cabinet picks reflect that “Personnel is Policy.” And with Democrats’ clean sweep of the White House, Senate, and House of Representatives, the gridlock in Washington may finally be breaking.
The Biden administration’s financial services policy agenda, however, may be defined less by buzzwords than by “buzz letters” - namely ESG - short for environmental, social, and governance standards that have become en vogue over the past decade and that appear poised to jump to the top of the regulatory agenda under Biden. As the term is most commonly used, ESG standards measure a company’s societal impact and are used by socially conscious investors to guide their investment decisions. ESG is most often associated with environmental issues, such as a company’s response to climate change. However, it covers a much wider range of corporate conduct and activities, such as a company’s approach to human capital and human rights, employee and board diversity, executive compensation, and political spending, to name just a few.
In stark contrast to the Trump administration’s approach, pro-ESG initiatives are expected to feature prominently in Biden’s regulatory agenda, including at the financial services regulatory agencies, which are expected to rely heavily on “disclosure mandates” to drive the president’s policy goals related to ESG. Under Biden, we are likely to see agencies such as the Securities and Exchange Commission (SEC) require companies to disclose additional ESG-related information. Disclosure mandates, of course, were a core feature of the Dodd-Frank Act that was championed by the Obama administration in response to the financial crisis, and we can expect to see more of the same on Biden’s watch. Of course, we also expect to see opposition from some issuers, specifically in the energy sector, as well as many Republicans in Congress, concerned that disclosures will be used by activists and politicians to “name and shame” companies into changing their behavior.
Related articles
Keep up-to-date
Sign up to receive the latest insights from Invesco’s global team of experts and details about on demand and upcoming online events.
Investment risks
-
The value of investments and any income will fluctuate (this may partly be the result of exchange rate fluctuations) and investors may not get back the full amount invested.
Important information
-
All data is as at 26 January 2021 unless otherwise stated.
This document is marketing material and is not intended as a recommendation to invest in any particular asset class, security or strategy. Regulatory requirements that require impartiality of investment/investment strategy recommendations are therefore not applicable nor are any prohibitions to trade before publication. The information provided is for illustrative purposes only, it should not be relied upon as recommendations to buy or sell securities.
Where individuals or the business have expressed opinions, they are based on current market conditions, they may differ from those of other investment professionals, they are subject to change without notice and are not to be construed as investment advice.