Fiona Reynolds writes in The Hill:
The United States is a global leader by so many measures. The U.S. Women’s National Soccer Team did just win the World Cup, after all. Yet, when it comes to responsible investing, a critical tool for embedding social and climate awareness in the way we do business, the U.S. is lagging behind.Investors and regulators around the world, including the European Union this past March, now recognize that integrating environmental, social and governance (ESG) factors has become a necessary part of investing.
More than 20 countries and seven stock exchanges around the world have enacted rules requiring companies to disclose ESG information.When a company integrates ESG considerations into the management of their business, it often coincides with reduced volatility and better performance over time – it’s no wonder regulators want to encourage this outcome.
A meta‐study by Deutsche Asset & Wealth Management and the University of Hamburg found “a positive correlation between ESG and financial performance,” where ESG strategies outperformed 62 percent of the time, 30 percent had neutral performance and only 8 percent under performed. Further, when investors can access comparable and consistent data, new opportunities emerge for better investment decisions.
Yet despite this growing global consensus, the U.S. Securities and Exchange Commission (SEC) has not implemented disclosure requirements for material ESG factors. Moreover, the SEC is considering regulatory changes that would curtail the rights of shareholders to communicate effectively with the companies they invest in, including to weigh in on ESG considerations. By increasing ownership requirements for submitting shareholder proposals and limiting the role of proxy advisory firms, the proposals currently under consideration by the SEC would threaten the rights of investors to stay actively engaged on issues that affect a company’s reputation, profitability and long-term financial stability….
Without explicitly requiring ESG disclosures, the SEC leaves investors with a blind spot that competitors in foreign markets can, and will, seize. Prioritizing disclosure requirements to encourage the incorporation of ESG considerations is a critical next step – one that Congress and the SEC must take if America has any chance at leading on responsible investing.