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This article is part of a series that explains the differences between foundations and endowments, their power to advance the sustainable investing agenda, and investigates a variety of investment approaches.
Our planet has been pushed past its limits: floods, fires and extreme weather this past summer indicate that climate change is accelerating. A recent United Nations report found that the world risks soon hitting 1.5°C of global warming in the 2030s, a threshold that would ignite "extreme events unprecedented in the observational record."
The goal of the Paris Climate Agreement is to maintain that 1.5 threshold, however the U.N’s report explains that without "deep reductions in carbon dioxide and other greenhouse gas emissions," the world will surpass it within 80 years. As the 2030 deadline for the Paris Agreement and the Sustainable Development Goals agenda draws near, urgent action is required by consumers, regulators, governments, businesses and nonprofit organizations alike.
Foundations and endowments can support the shift towards a more sustainable future by integrating ESG factors into their portfolio, while also increasing an emphasis on impact investing and shareholder engagement. According to our latest whitepaper, in 2020, foundations and educational institutions together held 8% of the $6.2 trillion institutional investments in ESG assets. Besides employing negative and best-in-class positive screening strategies, many foundations and endowments are leveraging shares to engage in active ownership.
Negative screening refers to the exclusion of companies and certain sectors based on ethical, social, environment or religious factors. Most commonly, exclusionary strategies avoid investments in companies that are fully or partially involved in gambling, alcohol, child labor, human rights violations, tobacco and other related factors. Positive screening involves the inclusion of companies due to the social or environmental benefits of their products, brand value, leadership team or processes. Investors place a ‘premium’ on these ‘best in class’ businesses which ultimately increases their value.
Foundations and endowments have the unique opportunity to advance the norm of conscious investing and mitigate the effects of climate change. With our planet pushed past its limits, the urgency for sustainable investing has never been more important.
Aneuvia is an investment management firm that provides foundations and endowments with sustainable investing, integration of ESG and corporate strategies and impact investing consultation. View our latest whitepaper, Foundations & Endowments: Trends in Sustainable Investing, to learn more
JPMorgan Chase & Co. analysts expect 2021 to be the first year that more green, social, and sustainability debt is sold in U.S. dollars than euros. Additionally, the U.S. SIF Foundation said last month that sustainable investments account for about $1 in every $3 of total assets under professional management.
Though behind the EU agenda on ESG regulatory the U.S. has made incremental strides in the ESG regulatory landscape. However, amidst the transition to the Biden administration, regulatory bodies in the United States are finally moving the needle on ESG.
First, let’s uncover the EU progress to date. Since 2017, the European Union has required listed companies to include a “non-financial statement” on corporate social responsibility matters. At a minimum, it addressed environmental, social and employee matters, respect towards human rights, anti-corruption, bribery, diversity data, and more. In 2019, they went a step further by issuing guidance on disclosure of climate-related information. In addition to climate change matters, the European Union has also introduced new disclosure requirements on conflict minerals in supply chains.
This March, the EU launched its SFDR regulation to address “greenwashing” and fulfill its carbon neutrality ambitions. With many more ESG-related reforms in the pipeline, the conversation in the EU has clearly moved from the “why” to “how” of ESG investing.
In comparison, the US is still a laggard in this area. As the Biden administration takes over from the Trump administration, the focus is on reversing previous ESG-related rollbacks and putting ESG back on the agenda. For starters, the administration recently reviewed the DOL’s controversial ESG Rule and halted its enforcement. In his “Executive Order on Tackling the Climate Crisis at Home and Abroad,” President Biden prioritized managing climate-related risks and exploring climate finance plan opportunities. This April, at Biden’s Climate Summit, the U.S. announced aggressive emission reduction and carbon neutrality targets, aiming to reduce greenhouse gas emissions by 50-52% below 2005 levels by 2030.
So what’s next? Our latest whitepaper, The US’s ESG Regulatory Environment: Past, Present, and Future, uncovers the key trends that will shape the future of ESG regulation in the U.S. While the U.S. lacks the ESG infrastructure that Europe has developed, we believe it’s just a matter of time before the sustainable investing movement gains strong momentum in the U.S.