Asset owners face more risks as volatility will surge in US, warns investment veteran
Net Zero Investor checked in with Newday investor Doug Heske to get his thoughts on the much-talked about ESG bill in the US
The much-talked about environmental, social and governance (ESG) bill continues to make its way through the US federal government, with President Joe Biden recently rejecting the act that would have reversed the Labor Department’s framework on ESG investing.
In March, Biden blocked the bill that would have stopped retirement plans from incorporating ESG into their risk assessment, in his first-ever presidential veto.
The vetoed legislation looked to overturn a ruling from December last year, which allowed fiduciaries to consider climate change and other ESG factors when making investment decisions and when they exercise shareholder rights, including voting on shareholder resolutions and board nominations.
Prior to the veto, the bill had passed the House 216 – 204, and the Senate 50 – 46. Democratic Senators Jon Tester and Joe Manchin sided with the Republican majority to get the bill through Congress.
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So what is going on, and what can asset owners, investors and corporates expect in the world's largest market?
Net Zero Investor checked in with San Francisco-based investor Doug Heske, who heads NYSE-listed Newday Impact, to get his thoughts and perspectives on the new bill and its impact on the net zero investment community.
US players face a wave of new rules, it seems. A bumpy road ahead?
Yes, there will be a lot of big net zero winners and losers. Therefore, there will be more volatility. Asset owners must take this into account when investing because of the increased risk.
How do you think these new rules will impact net zero efforts in investing?
Consumers are increasingly aligning with companies that have net zero and ESG efforts, including those that support new rules and legislation. Let’s look at one possible investment example: imagine that a growing number of people want to rent electric cars from rental car companies. The companies that convert their fleets the fastest to meet this demand should do better and would likely be good investments. This is how new rules and legislation will impact net zero and EGS efforts in investing.
There will be a lot of big net zero winners and losers. Therefore, there will be more volatility. Asset owners must take this into account.
What is driving the new legislation around net zero and ESG?
Net zero legislation and the environmental component of ESG are being driven by the growing understanding and concern that greenhouse gas emissions are impacting the climate. Scientists know that this is directly linked to human activity. Net zero is the effort to reduce greenhouse gas emissions to zero. Recent presidential legislation regarding net zero is addressing this. There have also been other new rules that are not in favour of such actions.
Do you think there should be more legal force, via legislation, to accelerate companies' road to net zero?
I don’t think there will need to be additional legislation in the consumer sector, as consumer purchasing decisions will ensure change, such as with the rental car example. In other words, consumer purchasing decisions are what will ensure these companies change.
However, in business, it is more complicated. But, if the SEC rule regarding Scope 3 emission transparency goes through, this should make things much clearer for investors. The above business issues will affect profitability and therefore, require companies to address greenhouse gas emissions or related corporate activities.
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