The Mutual Influence of Investors and Government

Posted on July 5, 2021

Trevor David
Trevor David
Associate Director, Client Relations

On issues from voting rights to climate change, the relationship between investors, companies, and governments has never been more dynamic. This has spurred a lively discussion about the impact and appropriate role of these actors in addressing systemic environmental and social issues. An increasingly cited view is that commitments made by businesses and investors are often superficial, and at best, can provide only incremental progress towards addressing the problems we face. Some go further to suggest that sustainable investing has done more harm than good, with the notion that these efforts have provided a false sense of progress and have delayed meaningful government action. This is a worthwhile debate, but my experience over the last eight years in the sustainable investing space has given me a very different perspective.  

We should not overlook the inherent interconnectedness of government, business, and the investment community. Sustainable investors have a rich history of influencing governments directly through engagement efforts and investment decisions. The very origin of the sustainable investment movement was born from divestment of companies operating in South Africa to pressure the government into dismantling the system of apartheid.

We see investors continue to be on the leading edge of environmental and social issues, through actions such as committing to not fund arctic oil exploration, advocating for gender pay equality and joining initiatives like Tobacco Free Portfolios.[i] These efforts contribute meaningfully to changing societal perspectives and help to create the space for progressive regulations. Before reaching the Paris Agreement, 400 investors collectively advocated to G20 nations, “We urge all nations to stand by their commitments to the agreement and to put in place policy measures to achieve their nationally-determined contributions (NDCs) with the utmost urgency.”[ii] Less than two weeks before the Biden administration’s ambitious pledge to reduce GHG emissions by 50% by 2030, 310 businesses and institutional investors, including Google and CalSTRS, called on the administration to adopt this target.[iii]

Industry groups such as US SIF and RIA Canada have also made meaningful efforts to steer public policy in a more sustainable direction, which I have had the opportunity to see first-hand. In 2018, I joined a delegation of investors advocating for shareholder rights and measures to address climate change as part of US SIF’s 2018 Capitol Hill Day. Last year, I signed a letter alongside 209 recipients of Canada’s Clean50 Award, calling on the Canadian government to demonstrate global leadership in infrastructure and policy through clean energy investments and climate change adaptation.[iv]

Investors like Columbia Threadneedle demonstrate that an impact investing approach can be applied to the selection of municipal government bonds. Through the firm’s Social Impact Bond Fund, securities are selected based on an assessment framework that considers impact in thematic areas, including health, education, and affordable housing.[v] Fixed income investors are increasingly integrating ESG Risk factors into their sovereign bond investment process. They are using inputs such as Sustainalytics Country Risk Ratings, which considers factors such as national food security, political rights, and regulatory quality. 

Despite recent progress on infrastructure and policy commitments to combat climate change, we cannot rely solely on government to address broad environmental and social issues. Many countries, including Canada, risk losing ground, as illustrated by our second largest political party recently voting down a proposal to recognize the climate crisis as real.[vi] When faced with governments that do not accept the science or urgency of climate change, the role of investors and businesses focused on the long-term becomes critical to delivering steady progress on these issues.

As sustainable investing assets have grown rapidly, we have not seen complacency to government action that the distraction argument would predict. Today, 62% of all assets in Canada are subject to a sustainable investing approach, and most Canadians believe that the government must act now to combat climate change.[vii] From 2014 to 2020, the percentage of Americans that said protecting the environment and dealing with global climate change should be a government priority increased from 49% to 64%, alongside dramatic growth in the number of sustainable funds.[viii] There is no choice to be made between investing sustainably and engaging in the political process, in the same way that we don’t choose between buying fair trade coffee and recycling. Far from being a diversion from progress, individual and collective efforts from sustainable investors can meaningfully influence government policy through engagement, divestment and bringing systemic environmental and social issues to the forefront of our collective consciousness.

 

Sources:


[ii] Principles for Responsible Investment (08.05.2017) “Letter from global investors to governments of the G7 and G20 nations”, https://www.unpri.org/news-and-press/letter-from-global-investors-to-governments-of-the-g7-and-g20-nations/379.article

[iii] We Mean Business, “Businesses and Investors Call for Ambitions U.S. NDC” https://www.wemeanbusinesscoalition.org/ambitious-u-s-2030-ndc/

[iv] Clean 50 (22.04.2020) “Post COVID19: 217 Clean50 Leaders call for a #CleanReset for Canada”, https://clean50.com/cleanreset/

[v] Columbia Threadneedle (2020) “Annual Social Impact Report 2020”, https://www.columbiathreadneedleus.com/binaries/content/assets/cti/public/US_SOCIAL_BOND_SIR.PDF

[vi] Global News (20.03.2021) “Conservative party members vote down resolution to officially recognize climate change”, https://globalnews.ca/news/7708960/conservative-party-climate-change/

[vii] RIA Canada (11.2020) “2020 Canadian RI Trends Report”, https://www.riacanada.ca/research/2020-canadian-ri-trends-report/, Ipsos (22.04.2020) “Two-Thirds of Canadians Think, Long Term, Climate Change is as Serious of a Problem as Coronavirus”, https://www.ipsos.com/en-ca/news-and-polls/Two-Thirds-Of-Canadians-Think--In-The-Long-Term-Climate-Change-Is-As-Serious-Of-A-Problem-As-Coronavirus

[viii] Pew Research Center (23.06.2020) “Two-Thirds of Americans Think Government Should Do More on Climate”, https://www.pewresearch.org/science/2020/06/23/two-thirds-of-americans-think-government-should-do-more-on-climate/

Recent Content

Physical Climate Risks: 6 Things Portfolio Managers Need to Know

The negative physical impacts of climate change are being felt by communities and corporations globally and are likely to get worse in the coming years. The knock-on costs of more frequent “once-in-a-century” climate events on economies are likely to rise. To prepare for this looming threat, investors must forecast the asset-level effects of climate change on companies in a granular and sophisticated way. Here are six things portfolio managers should know to manage and mitigate the physical risks of climate change to their portfolios and meet growing list of climate-focused reporting requirements.

human rights

Applying Business and Human Rights International Standards to Investor Due Diligence

Socially conscious ESG investors are interested in how to implement international business and human rights norms in their portfolios and understand the potential impacts of applying additional screening criteria within their strategy.

wireless users network outage

Telecom Network Outages, the ESG Risks of a Connected World

The telecom industry is exposed to several Material ESG Issues, including Data Privacy and Security, Business Ethics, Human Capital and Product Governance. Product Governance issues in the telecom industry include service quality, maintaining reliable, high-speed networks, and responding to customer billing concerns.

ESG Risk Data Center

ESG Risks Affecting Data Centers: Why Water Resource Use Matters to Investors

Data centers play a critical role for many technology and telecom companies and for their supporting servers, digital storage equipment and network infrastructure for data processing and storage. Data centers require high volumes of water directly for cooling purposes and indirectly, through electricity generation. Morningstar Sustainalytics’ recent activation of the Resource Use Material ESG Issue (MEI) within its ESG Risk Ratings recognizes water risks of data centers.