The U.S. has European role models for ESG
Coinciding social, economic and public health crises have ravaged the United States in less than a year and a half. Yet, accenting America’s ongoing racial reckoning, economic recovery and pandemic response are a series of damaging, extreme climate events that have pushed already stressed infrastructure and systems to near breaking points. We need only look to the western wildfires of summer 2020 or Texas power outages in February 2021 to acknowledge that the climate risks once thought to be far off appear to be right at America’s doorstep.
Change is starting, but the U.S. is lagging
Just as new policy directives, offices and special appointments across the federal government signal a renewed commitment to fighting climate change in the public sector, trends like environmental, social and governance (ESG) and climate-related financial disclosures have continued to accelerate in American financial markets. Investors, likewise, have taken heed of these events and now correlate sustainability risks as investment risks. As of the end of 2020, 60% of Russell 3000 companies mentioned climate risk in filings, up from 35% in 2009. Likewise, the Forum for Sustainable and Responsible Investment reported that between 2018 and 2020, total U.S.-domiciled, sustainably invested assets under management surged 42% to $17.1 trillion, up from $12 trillion, now accounting for 33% of all U.S. assets under professional management. Leading investment management firms have also taken heed; Vanguard, BlackRock, Transamerica, Goldman Sachs and Franklin Templeton all launched ESG products in 2020, and BlackRock achieved its goal of integrating 100% of its approximately 5,600 active and advisory strategies into ESG investment process, covering $2.7 trillion USD in assets.
Climate change is expected to impact nearly every facet of the U.S. economy, including infrastructure, agriculture, residential and commercial property, and human health and labor productivity. Indeed, we are already seeing how climate change is affecting our economy. In 2020 alone, the United States experienced 22 billion-dollar weather events — severe storms, tropical cyclones, wildfire and drought — to the tune of USD $92 billion in damages. In addition to these rapid-fire disasters, the risks associated with a transition to a net-zero-emissions economy may prove substantial if markets and market participants are unable to adapt to swift changes in policy, technology and consumer preferences. These physical and transitional risks, coupled with relative uncertainty about future climate scenarios, threaten to disrupt the U.S. financial system and its ability to sustain the American economy. In recognition of these threats, President Joe Biden was quick to deliver on a number of campaign pledges to advance climate adoption at all levels of government, chart a path toward a net-zero and 100% renewable energy economy by 2050, and provide renewed global leadership in meeting the threat of climate change.