ESG As Government Policy

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Jaret Seiberg, Financial Services and Housing Policy Analyst discusses the recent Ahead of the Curve® Series report, ESG Infuses Democratic Plans for Financials, Housing. He explores how ESG has become a political philosophy and how it has affected legislation and the regulatory atmosphere. He also speaks about the blurring of the lines between governance, environmentalism, and civil rights.

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This is Jaret Seiberg with Cowen Washington Research Group. We recently published an Ahead of the Curve® Series Report looking at how ESG has become not just an investment strategy, but also a political philosophy.

Environmental – Social Justice – Governance has become a focal point for the investment community.  24% of the overall flows into U.S. stock and bond funds last year had an ESG mandate. That figure was double for Europe.

Yet ESG is not just about how investments are managed. It is a broader philosophy that is seeping into the U.S. political system in a way that impacts the legislative and regulatory risks for financial firms and the housing sector. 

There have always been activists pushing to save the environment, champion civil rights and promote good governance. What is different is the blurring of the lines between these roles. These leaders focus on all three pillars as they view the three as interconnected.

Political leaders who have embraced the ESG philosophy vary from newcomers like Rep. Alexandria Ocasio-Cortez to legislative veterans like Senate Banking Chairman Sherrod Brown. They get their power from the grass roots of the Democratic Party. This is leading to more traditional policymakers advocating for ESG priorities.

Treasury Secretary Janet Yellen wants climate change disclosure. The Consumer Financial Protection Bureau (CFPB) now frames its mission through a social justice lens. And House Financial Services Chair Maxine Waters already has passed ESG legislation out of her committee.

Much of the ESG agenda will not get enacted into law before the mid-term election, though we expect regulators will finalize ESG-related rules. So policy will move in an ESG-friendly direction. To Cowen Washington Research Group, this will be tough to reverse. If it works for the markets then it can work for Washington.

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