Economy and Society: The Federal Reserve and ESG – Ballotpedia News Ballotpedia NewsEconomy and Society: The Federal Reserve and ESG – Ballotpedia News Ballotpedia NewsEconomy and Society: The Federal Reserve and ESG – Ballotpedia News Ballotpedia News
Impact Investing Forum 2022
London. Dec 07-08, 2022.
Economy and Society is Ballotpedia’s weekly review of corporate activism, corporate political engagement, and the Environmental, Social, and Corporate Governance trends and events that are defining the growing intersection of business and politics. ESG Developments This Week in Washington, D.C. Federal Reserve looking at ESG-friendly Stress-tests for Banks. For most of the past year, the ESG-regulation discussion has focused on two main subjects: the Securities and Exchange Commission’s desire to require publicly traded companies to disclose information about environmental, social and governance data, as well as traditional pecuniary disclosures. The Department of Labor’s proposed rule to repeal the Trump administration’s rule regarding investments by ERISA-governed retirement planin ESG vehicles. Analysts believe that the Federal Reserve could impose regulations on financial firms regarding ESG-related matters before the year is out. The Federal Reserve wants ESG data, and climate change exposure, to be included in the stress tests in the banks are required to take part. Forbes’ senior contributor noted that in October, Lael Brainard, a pioneer of this field, gave some basic guidance about how the central bank might take on efforts, which are strongly opposed by the financial sector, to consider climate risks when assessing potential sources of volatility. Brainard stated that the total cost of U.S. climate and weather disasters in the last five years has reached $630 billion. This is a record for this period. She said that this includes billions of dollars in damages to homes, farms, and businesses. 2020 will mark the sixth consecutive year with ten or more climate and weather events exceeding a billion dollars. She said that she could already see the rising costs associated with climate-related events’ increasing severity and frequency at a Boston Fed conference. “Several foreign regulators have done climate scenario analysis, giving us the chance to learn from their experiences. It will be beneficial to proceed with the first generation climate scenario analysis to identify potential risks and issues, and to inform subsequent refinements of our models and data .”… Brainard suggests using the existing bank stress testing framework to help you think about how to get started. Reuters reported in November that Wall Street does not expect these tests to take place immediately. “A U.S. Treasury Department-led study last month warned that rising temperatures are an “emerging danger” to financial stability. It suggested that regulators should use scenario analysis to create robust risk-management tools. The Fed is the world’s most influential central bank, but it has been slow to get to grips with these risks. According to seven industry executives who were not named, the Fed has increased pressure on large banks to check their portfolios for climate risk over the past year. The Fed could be in a position in 2023 to release broad findings and conduct a formal scenario analysis. The growing industry consensus, previously unreported, shows how regulators are working quickly to implement President Joe Biden’s agenda to integrate climate risk into the financial regulation system. This has major implications for Wall Street banks such as JPMorgan Chase & Co. (JPM.N), Citigroup (C.N), Wells Fargo & Co. (WFC.N), Bank of America Corp. (BAC.N), Goldman Sachs Group. (GS.N), and Morgan Stanley. (MS.N )…. Reuters reported that Fed supervisors began privately asking lenders for information and details about their efforts to assess their loan books’ exposure to climate change. Kevin Stiroh is leading Fed’s climate change supervision work. According to the executives, they have intensified in recent weeks and begun to focus on how a balanced sheet scenario analysis might work. According to the executives, “Broadly speaking regulators are moving forward at all due speed on that,” said Sean Campbell, head for policy research at Financial Services Forum. He stated that a 2023 timeline was “about right” but that Fed officials have not yet indicated when they expect to conduct an analysis. Randal Quarles (the Fed’s former vice chair for supervision) said in an interview that there was no official timeline but that he believed two years would be sufficient. A Wall Street Journal article on December 28 stated that President Biden is likely to appoint Sarah Bloom Raskin as the Fed’s top regulator. Raskin supports an ESG-related regulatory mission of the federal government (including, presumably the Federal Reserve). The Journal stated that “Ms. The Journal noted that Raskin’s nomination could be a win for progressive Democrats who were opposed to Mr. Biden’s November decision to offer a second term as Fed Chairman Jerome Powell. Powell was a Republican who was first elected to the top job by former President Donald Trump. They called for a stronger stance by the Fed in regulating large banks and a bolder approach to addressing financial risk posed by climate change. Ms. Raskin served as a Fed Governor from 2010 to 2014. She was also involved in the behind-the-scenes work that led to the creation of rules for the Dodd-Frank financial-regulatory overhaul. Ms. Raskin, who left the government in 2010, has spoken out about the need for the Fed to be more proactive in addressing climate-related threats such as wildfires and natural disasters. Ms. Raskin stated that federal economic policy makers can take pre-emptive, early, and bold actions to avoid catastrophe in a report from Ceres Accelerator for Sustainable Markets last year. This advocacy group is dedicated to climate change. Sen. Elizabeth Warren (D., Mass.) Sen. Elizabeth Warren (D., Mass.) has indicated to the White House that she would support Ms. Raskin and Richard Cordray, the first confirmed director of the Consumer Financial Protection Bureau, who has also been under consideration for the Fed’s banking-regulator post ….. In a May 2020 New York Times opinion piece, Ms. Raskin criticized broad-based emergency lending backstops created by the Treasury and Fed to aid businesses during the pandemic. She believed they should have taken steps against oil-and gas concerns lending. “The decisions made by the Fed on our behalf should build toward a stronger economic system with more jobs and innovative industries–not support and enrich dying ones,” she wrote.” Wall Street and the private sector Reuters: “How ESG investing became the year 2021” Analysts have offered many views of the Wall Street year that was, and also provided predictions for the coming year. Many of those forecasts and retrospectives were focused on ESG, which was still one of the most popular investment strategies worldwide in 2021. ESG’s upside is that Reuters reported on December 23 that ESG investors had a record year in 2021. They successfully pushed companies and regulators for changes amid record-breaking inflows of funds focused on environmental, corporate governance (ESG), issues. ESG has risen to the top of investors’ and policy makers’ agendas due to extreme weather and events that highlight social justice issues such as George Floyd’s death in Minneapolis police custody. Refinitiv Lipper data shows that $649 billion was poured into ESG-focused funds globally between Nov. 30 and 2019. This is an increase of the $542 billion or $285 billion that went into these funds in 2020, respectively. ESG funds now represent 10% of global fund assets. Stocks of companies that are highly rated for their sustainability efforts also saw gains. The MSCI World ESG Leaders’ Index has increased 22% this year, compared to the MSCI World Index’s 15% gain. Investors flexed the muscle to challenge companies’ ESG credentials, culminating with a landmark board challenge against Exxon Mobil Corp. (XOM.N). According to the Sustainable Investments Institute, 32% of shareholders in the United States supported social and environmental proposals in 2021, up from 27% in 2020 and 21% in 2017. “It was an important year,” stated Tim Smith, a director of investment management firm Boston Trust Walden . [Additionally] Companies can sometimes ask the SEC to allow them to put shareholder resolutions up for a vote in the United States. Thomas Skulski is the managing director of proxy solicitor Morrow Sodali. He said that the SEC in November strengthened the hand for ESG investors by limiting the circumstances in which companies can skip votes. Skulski stated that companies next year may face more operational challenges, such as how they use plastics or packaging, Skulski said.” Financial Times. ESG shares underperform oil & gas shares in 2021. Exxon and Chevron, both US giants, had increased their 2021 earnings by 48% and 40%, respectively, as of December 29. These two have helped to power global equity funds past many of the hundreds US and European sustainable funds, as defined by Morningstar (a data provider). The iShares MSCI global Energy Producers exchange-traded fund has risen 37% to December 29, surpassing the largest US ESG fund, the $31.8bn Parnassus Core Equity Fund, which is up 28%. The largest iShares ESG funds managed by BlackRock have also seen a decline of 30%. This is a marked change from 2020. The more muted performance suggests that investor enthusiasm has cooled. Investor inflows to the fund class have slowed down from their brash pace at the start of the year. The Invesco Solar ETF, and the iShares Global Clean Energy ETF have dropped more than a quarter of their value this year. These funds’ share prices, however, tripled and twice as high in 2020 when Exxon fell 41% and Chevron fell 30%, respectively. Gauthier stated that Orsted, a Danish power company, was the “darling” of ESG funds in 2020. Vestas, a wind turbine manufacturer, and Orsted have warned of difficult conditions in renewable energy after projects across Europe experienced low wind speeds and higher manufacturing costs. Vestas and Orsted have seen their shares drop by about a third in 2021. Iberdrola is a Spanish utility that has also prioritized renewable electricity. It is down about a tenth of this year. Despite volatility in oil prices due to the Omicron coronavirus strain’s emergence last month, Brent crude oil and the benchmark WTI in the USA are both up more than half a percent in 2021. JPMorgan predicts that global oil demand will surpass 2019 levels by March 2022, and will continue to rise in 2023. Joyce Chang, head of global research at JPMorgan, stated that “We are witnessing the first energy crisis in the decarbonisation era.”
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