Evolving ESG regulations in the US

Global ESG Summit panellists say absence of regulation allows for data disparity

The US has lagged Europe in advancing rules that promote sustainable investing, but that is starting to change. This year, the Securities and Exchange Commission and Department of Labor will publish new regulations that could advance ESG in numerous ways. Nathalie Wallace, head of responsible investing at Natixis, and Andrew Behar, CEO of As You Sow, addressed the changing regulatory landscape and what it means for ESG investors.

ESG Clarity’s third Global ESG Summit, supported by WWF International, UN Capital Development Fund and Climate Action 100+, brought together industry experts across three regions (the UK, Asia and the US) to discuss the biggest themes, risks, opportunities, barriers and chances for collaboration.

In the second of two US panel sessions, Wallace and Behar discussed the need for stronger ESG regulations in order to help protect US investors and bring the county’s standards in line with global ones.

The SEC, for example, has proposed a rule that would require climate disclosures for public companies.

“Shareholders right now are investing blind. We do not know a lot about the companies we are investing in,” Behar said. Audited financial reports are the main source of reliable information, which usually says little about ESG factors, he said. That leaves investors to pull data from news reports, lawsuits and other sources.

“It takes a great deal of work for an investor to extract the data, and two investors will extract different stories.”

Currently, investors who have the financial resources to pay for third-party services that give estimated information around emissions and other climate data are at an advantage, Wallace said.

“This is a fundamental right for all investors to have access to the same information. And it’s about market efficiency,” she said.

Other SEC proposals address product names and marketing, an effort the agency has made to tamp down on greenwashing.

“There is a gap in fund naming. Right now, funds can simply change their name to have ESG in the name, or say they are ESG, without changing their holdings,” Behar said.

“There are very clever people at these fund management companies who are naming their funds ‘ESG’ because all the money wants to go into ESG – because ESG means reduced risk. Any yet, they are still getting private prisons, coal-fired utilities, deforestation – all the risk you think you’re going to avoid.”

Greenwashing “is really an issue for investors,” Wallace said. There is also a need to verify data to help investors make more informed decisions, she said.

“The absence of regulation has really allowed, or enabled, the data providers to come with their own data, their own estimates, which sometimes are really far from reality.”

Watch the first panel from the US stream of the Global ESG Summit here.