After a year of pandemic-borne uncertainty and a national reckoning with systemic inequality, consumers are holding companies to a higher standard than ever, forcing their investors to look at how they align their portfolios with consumers’ principles.
This concept is most often referred to as Environmental, Social, and Governance (ESG) investing (or sustainable investing, socially responsible investing, or impact investing).
ESG practices can include— but are not limited to— how corporations address the impact of climate change; foster diversity, inclusion and equity among workers and vendors, or ensure supply chain sustainability.
ESG investing jumped more than 140 percent in 2020 and now makes up about a third of all investment assets.
And with climate change/sustainability and racial equity top policy priorities for the Biden-Harris administration, expect that share to grow.
Once seen as voluntary self-measurement standards, ESG criteria are becoming key metrics for investors and existential necessities for pursuing equitable policy. Just last week, BlackRock, the world’s largest asset manager, called for mandatory reporting of climate-related financial risks and asked global regulators to pair any new rules with a temporary shield to protect companies from legal liability.
As senior policymakers face the reality of a polarized Congress with limited room for bipartisanship, the administration and financial regulatory agencies could seek to incentivize or even impose changes on the private sector through heavier reporting and transparency requirements, leading to increased regulation and oversight.