Are ESG’s the Key to Biden’s Clean Energy Economy?

And you think the Green Bond markets took a knockout punch from the Coronavirus shutdown? Think again…

by Jason Gold, Managing Director, Progressive Policy Institute

I have long paid attention to the trends of ESG. (Environmental, Social and Governance). I wrote my first piece in US News and World Report almost five years ago. You can also see my theory of the case in this white paper I authored while at S&P Global in 2017.

ESG is essentially the incorporation of beyond-financial considerations (data) into risk and opportunity analysis. Some call it sustainability, responsible investing, social impact, diversity or stakeholder capitalism. (Skeptics simply call it public relations) But to me, it’s all part of a bigger conversation that legs up and into ESG.

These disciplines are evolving, and while there are some global agreements like Principles for Responsible Investing (PRI) or the United Nations Sustainable Development Goals (SDG), many governments are working to adapt within these frameworks.

The U.S. Federal Government, however, has fallen woefully behind these global efforts. Thankfully, the U.S. private sector has not.

Should VP Biden be elected President, these efforts are more likely to be formally adopted in government. At an institutional level, this will happen in places like the Securities and Exchange Commission (SEC), Department of Labor (more on DOL and ESG next newsletter) and Department of Treasury.

What that eventually looks like is still an open question. While some ESG scrutiny is straightforward, as in the case of traditional credit analysis, other can be more of an opaque “connect the dots” exercise. Trying to make the world a better place is a complex practice. But increasingly, if you aren’t utilizing some ESG prism to bridge financial, corporate and public policy preparedness, you simply will find yourself behind, not ahead, of the curve.

This is not to say ESG should replace or diminish traditional analysis. Financial metrics still matter and so should the bottom line. But, with the meteoric rise of ESG, and the innovation of modern data and analytical tools, the journey to the bottom line will become every bit as important as the bottom line itself.

ESG will surely find ways to directly impact price, and ultimately- that is why ESG matters most.

Biden’s Green Agenda

It’s notable in the recently released “Biden-Sanders Unity Task Force” recommendations; the aspirational policy document starts out emphatically with re-imagining a green-new world and the U.S. reclaiming its global leadership by rejoining and leading the Paris Climate Accords. Bravo. Should VP Biden win this fall, and Democrats take over the Senate, this bodes well for massive amounts of new green investments.

The most obvious place to start is with infrastructure. (Insert “infrastructure week” joke here). Whatever you think of the merits of Biden’s shifts on the Green New Deal, government isn’t the sole actor here. U.S. businesses and investors that have embraced ESG are important catalysts for moving America faster toward a clean energy economy. That would mean a huge expansion of the “Green Bond” market. (Using debt markets to fund climate solutions). While this market is still relatively new, interest worldwide is growing fast, and this is a segment of the bond world that deserves increased attention. (We will be doing just that)

Speaking of Green Bonds….

Think the Green Bond markets took a knockout punch from the Coronavirus shutdown? Think again…

Green Bond Issuance 2020:

Data: Climate Bonds Initiative

About the Confederate Flag in Mississippi - Follow the Money

Mississippi has made it official: the state government recently reached bipartisan agreement to scrap the controversial Confederate flag. Cultural awakening? Maybe. One would certainly hope so.

This isn’t the first time the flag controversy has come up, however. Most recently in 2001, in what was known as “Proposition B”, more than 60% of voters chose to keep the provocative pennant.

So what changed? Well, obviously the moral reckoning of what America witnessed with the cold-blooded murder of George Floyd set things in motion. Then the National Collegiate Athletic Association (NCAA) threatened to withhold major sports championship events from the state if they didn’t change their flag. SEC Football and the millions behind it is serious business in Mississippi.

But while that may have been the straw that broke the camel’s back, an economic reassessment with the state’s cultural identity was a long time coming. Brain Drain, a combination of net outmigration and human capital flight has plagued Mississippi for years. The state has seen the worst net loss in the entire country of the prized millennial from 2010–2017, decimating its workforce and innovation engine. Additionally, only 52% of graduates of Mississippi’s public universities remain employed in the state after 5 years.

Why isn’t the state an attractive destination for top-flight talent? Two of the top seven reasons identified in the following slide by Rethink MS.org is “Image”, citing negative stereotypes reinforced by the state flag, and “Inclusiveness and Equality”, specifically “barriers and hostility to minorities and outside groups”.

Mississippi’s economic engine was sick. Homegrown and educated millennial talent was fleeing in droves, and it simply wasn’t sustainable.

PS- A flag change was probably inevitable anyway. If it weren’t Brain Drain or the NCAA, eventually the state most likely would have found themselves under pressure from municipal bond investors. As institutional investors incorporate ESG considerations, and start to exercise their considerable leverage, this issue would have come to a head sooner rather than later.

Just ask Mike Pence About the NCAA

This wasn’t the first high profile move by a state government to capitulate on social issues due to pressure from the NCAA and other business considerations. In 2015, then Indiana Gov. Mike Pence signed a modified version of an original bill known as Indiana’s “religious freedom” law. That bill would have given businesses the right to refuse services to LGBTQ customers based on religious freedoms.

Why the change of heart for the notoriously staunch social conservative? Hundreds of businesses and conventions threatened to pull from the state, including the NCAA. The influential sports association demanded a change in the law to align with their principles of inclusiveness, or they would move the men’s basketball Final Four championship tournament scheduled for Indianapolis that same year, as well as moving NCAA’s business headquarters that also reside in the city.

Meanwhile… Inside the Klubhouse

Just my two cents, but hard to see right now how we have any successful sports season over the next year. I want sports back as much as anyone- but read what the World Series Champion Washington Nationals ace reliever and general life philosopher Sean Doolittle says about the upcoming return of sports-

“We’re trying to bring baseball back during a pandemic that killed 130,000 people,” Doolittle said. “We’re way worse off as a country then we were in March when we shut this thing down. And, like, look at where other developed countries are in their response to this. We haven’t done any of the things that other countries have done to bring sports back. Sports are like the reward of a functioning society…if there aren’t sports, it’s going to be because people are not wearing masks, because the response to this has been so politicized,”

Baseball has long had a troubled history with good governance, as I wrote here in February about the Astros cheating scandal. The players know this, and when it comes to something like a deadly virus, a successful season won’t happen without full transparency by ownership — and the Federal Government.

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