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Biden and ESG:

How the new administration might shape the sustainability landscape

By January 13, 2021No Comments

With one week until President-Elect Joe Biden takes office, the U.S. is likely in for a major shift in tone at the top.

The Trump administration has been marked by a loosening of regulations, both environmental and economic, that have drawn criticism for their negative impact on ESG issues from climate change to social justice. Analysts are already predicting that a Biden presidency will give a substantial boost to ESG investing and many of his early cabinet and advisor picks appear to be ESG-friendly. With the recent runoff election in Georgia adding two Democratic seats to the Senate, giving the party a narrow majority in both houses of Congress, Biden may be able to tackle more aggressive policy goals than previously anticipated.

Here are four possible ways that a Biden administration could impact the ESG agenda:

Climate change

On November 4, 2020, the U.S. became the first country to withdraw from the Paris climate agreement, fulfilling a long-stated goal of President Trump, who has spent much of the last four years dismantling climate policies established by his predecessor. Under the Trump administration, which has rolled back more than 80 environmental regulations, progress on cutting greenhouse gas emissions has all but stalled, with the U.S. falling far short of the 26-28% reduction in emissions promised by President Obama.

Biden made addressing climate change one of the central pillars of his campaign and has already pledged to make rejoining the Paris agreement part of his day one agenda. Upon rejoining, the U.S. will likely be expected to provide an updated climate target and a concrete plan to reduce domestic emissions from the power and energy sector.

The President-elect has also promised a $2 trillion green stimulus package to help reduce US emissions by investing in clean energy and incentivizing the development of new technologies.

Income inequality

Biden has committed to raising the federal minimum wage to $15 and supports indexing the minimum wage to the median hourly wage so that low-wage workers’ wages keep pace with those of middle income workers. Though states can set their own minimum wage and several have already passed legislation to incrementally raise wages to $15 an hour in the next few years, the federal minimum wage, which stands at $7.25 an hour, has not been raised since 2009, the longest stretch without a wage hike in U.S. history.

The Congressional Budget Office estimated that raising minimum wage to $15 an hour could increase paychecks for 27.3 million low-wage workers and lift 1.3 million workers out of poverty. Economic research has also found that a higher minimum wage does not cause greater unemployment and boosts productivity while addressing the growing problem of rising income inequality.

Regulation

With SEC Chairman Jay Clayton stepping down at the end of 2020 and the incoming administration responsible for appointing his replacement, the regulatory environment for investors could see a significant shift in the coming years.

Under the Trump administration, the SEC has implemented a number of changes that have eroded shareholder rights, established regulatory barriers to shareholder engagement and stripped away fundamental investor protections. Whereas Clayton was focused on expanding access and removing barriers to capital markets, a Biden appointee is expected to take a more prosecutorial approach toward securities enforcement.

Over the summer, the Department of Labor proposed a rule that would limit ESG investing for retirement accounts on the basis of fiduciary duty. While the final rule dialed back some of the most stringent restrictions, many sustainability advocates feel that it still hinders the integration of ESG considerations by investors. The SEC under Biden could seek to undo the rule or issue additional rules to clarify and offer guidance. It may also target 2020 regulations that focus on proxy voting, restricting non-economic initiatives taken by institutional shareholders to push for further ESG initiatives.

A Biden appointee is also likely push Biden’s climate change agenda forward in the SEC by requiring companies to disclose risks related to ESG issues, including addressing material risks associated with climate change.

Economic policy

Wall Street bankers, and in particular those from Goldman Sachs, have long held high-level economic positions in the White House and the Trump administration has been no exception, with Treasury Secretary Steven Mnuchin and other top officials coming from the firm.

In a possible return to Obama-era economic strategy, Biden has already tapped two BlackRock executives for senior roles on his economic team, including BlackRock’s head of sustainable investing, Brian Deese, who will run the National Economic Council. Adewale “Wally” Adeyemo, a former chief of staff to BlackRock’s chief executive, will serve as the top deputy at the Treasury Department.

While some progressives and investor advocates are concerned that appointing any Wall Street executives could result in looser regulatory scrutiny on big money managers, BlackRock may not draw the kind of resentment that traditional big banks like Goldman tend to generate. For one, BlackRock’s business centers on investing money for individuals and institutions like endowments, and much of its growth comes from funds that track market indexes rather than trading. For another, BlackRock’s commitment to addressing climate change and Deese’s sustainability bona fides may signal a new focus for U.S. economic policy.

It’s worth noting as well that in addition to Wall Street alum, much of the Biden administration’s economic team will be filled with economists and policy makers, including former Federal Reserve chair Janet Yellen, who Biden has nominated for Secretary of the Treasury.

With many ESG issues front and center among the policy goals of the incoming Biden administration and sustainability allies poised to take on crucial roles, the President-elect has signaled a major shift in priorities at the highest level of government. While it remains to be seen how any of these factors will play out in the coming months, it is clear that the U.S. path to sustainability will be heading in a different direction under the new administration.