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19:42

Guest speaker:

Chuka Umunna, Executive Director & Head of ESG for EMEA at Edelman 
Heidi DuBois, Executive VP and Head of ESG for the US at Edelman.

ESG & The U.S. Presidential Election: What's Next?

Episode 44 | Duration: 20 minutes

As President-elect Joe Biden enters into a transition stage, many anticipate a significant change in the US climate change policy and the ESG universe in general. What exactly can we expect to happen in the upcoming months and years?

  • Keesa Schreane [00:00:01] Welcome to the Refinitiv Sustainability Perspectives podcast, where our goal is to engage and inform our audience from investors to asset managers and portfolio managers to sustainability leaders and those involved in ESG and sustainable finance.  This is Keesa Schreane. And today we'll have a special episode to discuss what the US elections and their results mean for the future of ESG and sustainable finance. 

    Keesa Schreane [00:00:35] Here with us today: Our guest, Chuka Umunna, Executive Director and Head of ESG EMEA at Edelman and former member of the U.K. Parliament. Also, Heidi DuBois, Executive Vice Pesident and Head of ESG for the US Edelman, and former Head of ESG for PepsiCo and BNY Mellon. Thank you both for joining us. 

    Keesa Schreane [00:01:10] As President-elect Joe Biden enters into a transition stage, many in the environmental industry expect significant shifts in climate change policy in the US and shifts in the ESG universe in general. For example, we know that President-elect Biden intends to invest two trillion dollars in creating green jobs and investing in clean technology, introduce changes in the automotive industry and move the US back into the Paris agreement. 

    Keesa Schreane [00:01:40] So, Heidi, how realistic are these plans, especially since US Democrats might not get the majority in the Senate? 

    Heidi DuBois [00:01:48] Hi, Keesa. I think you're asking exactly the right question. Biden's as indicated on the transition website, has an ambitious agenda, starting with COVID, then moving to repairing the economy, racial justice, and as you mentioned, climate. And we just saw the Fed indicating its view that climate risk is a stability risk for the financial system. The question is how far this administration elect can get. Maybe a lot of that depends on the outcome of the election in Georgia. We will also need to see how active the more progressive faction of the Democratic Party is going to be in the coming months and years. I think that Biden and his administration are going to be selective about what they pursue because of the divide that we see in the United States today. I think strong ESG advocates have really high hopes for a lot of change, but I think the proof will be in the pudding there. And yes, a lot will depend on how the Senate ends up and in whose hands the Senate ends up being in. 

    Keesa Schreane [00:03:27] So, Chuka, to you, could you let us know your thoughts about what changes you expect to see globally and what that might mean for ESG investors? And should we be more sober in terms of our expectations about climate initiatives? 

    Chuka Umunna [00:03:42] Well, I think first to pick up where Heidi left off. There is a direct, of course, read across to the appointments that are going to be made and whether or not the Biden transition team feel they will be able to get potential cabinet appointments through confirmation hearings in the Senate. I think the general consensus view is that the person who fulfills the post of labor secretary is likely to come from the progressive wing. So I think there's a good chance that some of the most recent changes - just in the last couple of weeks, we've seen the US Labor Department make, in a kind of veiled attempt to make it more difficult to do ESG integration in pension fund management - certainly to have a labor secretary seeking to reverse them. 

    Chuka Umunna [00:04:38] I think the person in the lead to take up that role is Lyle Brainard. And certainly, in terms of what she said, it looks like she may be a reformer. So it will be interesting to see what changes are made by the Treasury. Of course, there's a lot of discussion about on the ESG front, the extent to which the US should be following the moves in Europe to mandatory reporting. In the U.K., just this month, it has just been announced that there will be mandatory reporting in line with the TCFD framework by 2025. The EU is moving in that direction as well. 

    Chuka Umunna [00:05:26] We may as well see moves towards that, but all this depends on the appointments and whether they confirm. One thing that is, without a doubt, is that the US will seek to sign up again to the Paris Climate Agreement. And I think one of the big questions is what the implications for that will be in terms of policy implementation. We know that Biden has said that he wants to spend two trillion dollars over four years. But how? Now, you would expect it around infrastructure investment, green technologies, that should likely provide a further boost to green bonds and social bond issuances, which have already ballooned over the last two quarters. And I think that that will only further turbocharge the whole ESG space globally. 

    Heidi DuBois [00:06:25] Yes, this is Heidi, I absolutely agree with Chuka on the potential for investment on the infrastructure front and the energy transition front if the administration is successful in pursuing its climate risk plan. 

    Keesa Schreane [00:06:46] So I'm wondering that you raise a good point. I love the fact that you brought up Chuka, the names of the cabinet members and government positions that will definitely have an impact here from the Treasury role to the Labor role. 

    Keesa Schreane [00:06:59] I'm wondering if there is a playbook that the US would be able to look at when it comes to making changes and the road to get there, based on what the EU has done. So as it relates to disclosure, for example, is there a playbook or an outline that you suspect that the US will follow to get closer, based on what the US done so far? 

    Chuka Umunna [00:07:21] Well, let's take the desire to prevent greenwashing and to ensure that investments are, what they say on the tin, that they genuinely ESG products as opposed to rebadged existing products that don't really deliver material benefits for the environment. I don't see why that has to become a partisan issue, regardless of who is in control of the Senate. In the EU. It isn't a massively political issue. That might explain why we've got an EU taxonomy, which has to be implemented on all by 20202, affects large companies and also asset managers. 

    [00:08:18] I don't see any reason why party politics and partizanship should have to stand in the way of measures being implemented in the Biden era. When you're just talking about the classification of products and making sure that citizens and consumers and investors get what they think they are buying. And so in that sense, there's a bit of a playbook that you can offer, because, look, it's not as if we're not polarized in Europe. Our politics is not quite as polarized as the politics in the US, but it's nevertheless polarized. And we see that with the residue of the Brexit debate in the UK. But you look across many of the leading economies in the world, they have a politics which is very divided between the populist stuff and the populist right. But there are still issues that don't need to become subject to the kind of talk about party politics. 

    Keesa Schreane [00:09:20] From talking about the polarization that exists in so many nations. Let's talk a bit about corporate governance. And we know that environmental risk and regulation is only one aspect of ESG. Corporate governance is a huge piece of that. We talk about the Biden-Harris White House priorities, Heidi, you mentioned them earlier: COVID, the economy, racial justice, and climate. Heidi, what should corporate boards be most attuned to as it relates to these priorities in 2021? 

    Heidi DuBois [00:09:51] I've seen a lot of writing in the past couple of days about the relationship that the Biden-Harris administration may have with Wall Street. You've probably seen mentions of Gary Gensler as a potential candidate for a cabinet role. I think Wall Street is probably feeling positive about that. That said, we do have the very progressive wing of the Democratic Party. 

    Heidi DuBois [00:10:21] And on October 30th, Elizabeth Warren and John Warner of Virginia, along with several others, took up again their agenda and initiatives on corporate governance, which include, for example, the Accountable Capitalism Act that Warren introduced in 2018, requiring employees to elect members of the board of any corporation with over one billion in tax receipts; That seventy five percent of shareholders and directors would have to approve any political spending, that there potentially be something of federalization of corporate law through the establishment of an office of the United States corporations. Now, while all of the enactment of this is is very much in question, Wall Street and the corporate sector should probably observe this carefully and perhaps accelerate responses to expectations of investors on strong corporate governance, independence of directors, a broad diversity of thought, ethnicity and gender, even age on a board refreshment. 

    Heidi DuBois [00:11:50] These are not new issues. But even if some of these governance concepts are not formalized through legislation, I do think that if anything, these ideas may accelerate and enhance the attention that boards can and should be looking at as we progress through the transition and the establishment of the cabinet. 

    Keesa Schreane [00:12:24] So you talked a bit about polarization early. I just want to get on that point. And we talk about this in context of corporate governance, diversity refreshing. It was refreshing, the boards, etc. What is the point of agreement on all sides that you think that we could at least start from? So if there are so many different views, is there one point that everyone could agree on and as it relates to corporate governance that we could move and take action from? 

    Heidi DuBois [00:12:50] That is a great question. And I think one place of agreement could be investor expectations. Like it or not, investors do have specific expectations of governance, and they now publish those expectations regularly on their websites so that corporations are aware of them. 

    Heidi DuBois [00:13:20] For example, State Street, a prominent investor, one of the top three, often in many shareholder bases of corporations, publicly announced its expectations of companies on diversity, equity and inclusion, giving corporations the heads up on what they can and should be reporting on diversity, equity and inclusion in their organizations. 

    Heidi DuBois [00:13:49] So I think there may be, in some respects, agreement by default on some of these practices through the interaction of investors and companies directly. And I would anticipate that the administration would support that interaction. And there may be individuals who are appointed in the administration that would assist directly or indirectly in encouraging that conversation. 

    Keesa Schreane [00:14:20] And as you're talking about investors and really the power that they have, what's the direction you're seeing with investor activism for ESG issues, especially as it relates to passive investors who are becoming more active? 

    Heidi DuBois [00:14:38] We do see a rise in passive investor activity. More and more, both active and passive investors are publishing stewardship reports that report out on engagements, the number of engagements that these investors have with companies, as well as the type of engagement. So you can actually track the increase for the most part of engagements on environmental, social and governance issues. So I think that will continue. People often refer to BlackRock as being in the vanguard of a lot of this, going back to climate and the agenda on managing climate risk. BlackRock announced that it had voted against fifty-three companies directors and lost in the last proxy season based on their perspective that companies had not made enough progress on managing climate risk. 

    Keesa Schreane [00:15:45] Great. And Chuka, we're going to give the last word here to you. Just based on everything that we've talked about as it relates to the elections here in the US, as it relates to the polarization and even as it relates to corporate governance, what critical ESG trend do you think will take the market by surprise in 2021? So there are still many things that we're focusing on right now. What's the one thing that you think that we maybe aren't giving as much thought to? 

    Chuka Umunna [00:16:17] I think the fixed income space could grow and grow. And I know that Refinitiv have tracked and produced giant data, showing green in social conditions in the first half 2020 really continuing upwards. But I think if we see all of these coordinated relief packages tied to green growth and obviously in the EU, the seven to eight hundred billion euro package, 30 percent of that is going to be driven towards green projects, then I think that is going to depend on how the investments are targeted and what the instruments are. 

    Chuka Umunna [00:16:58] I think that we're going to see a real uptick in green and social bonds and fixed income in a way that perhaps wasn't envisaged. The thing is, the problem is you get so nervous about making any prediction now because of the constant surprises. So I caveat it by saying I'm probably a poor predictor of anything at the moment. 

    Keesa Schreane [00:17:25] And to say that is a fair caveat would be an understatement. So great, fantastic insight here. So the expectation is the Biden-Harris White House will be pretty selective about what they pursue because of the division that we're experiencing in the country right now. It looks like there are many actors and players who could play a key role, from the Labor Department, Treasury. All those pieces are very important in terms of how ESG issues are approached. 

    Keesa Schreane [00:17:56] Partizanship may not play a huge role as it relates to classifying products. At the end of the day, it's important and in everyone's interest to make sure that we are getting what we think we're getting when we're buying. So that piece may not have as much of a polarizing effect. 

    Keesa Schreane [00:18:11] Shifting to corporate governance. You mentioned that it's clearly on the agenda for twenty twenty-one. And investor expectations might be the point where everyone could agree. Corporations should be clear on what reporting expectations would be. Active and passive investors are reporting stewardship more than ever before. We see stewardship reports around engagement on environmental, social, and governance issues. And finally, the major 2021 trend that we are predicting, is fixed income. Fixed income space due to COVID relief packages may see growth in the areas of green projects. Heidi, Chuka, a great conversation. Fascinating in terms of your thoughts about direction. Thank you so much for joining us.