The impact investing community is offering a list of public policy proposals for the incoming presidential administration of Joe
Biden
and
Kamala Harris
to facilitate the flow of private capital to public issues, from community reinvestment to environmental protection.
The policy agenda—“Private Capital, Public Good: Leveraging Impact Investing to Support a Just & Equitable Recovery”—was released Tuesday morning by the U.S. Impact Investing Alliance (USIIA).
The alliance’s objective is to offer specific proposals to “transform community investing to confront inequality,” and to “advance stakeholder capitalism to restore American economic leadership.”
The policy report—created with input from about 50 impact investors, community stakeholders, and public policy experts—follows a broader 2014 initiative directed to federal policy makers that was led by USIIA’s predecessor organization, says
Fran Seegull,
the alliance’s executive director.
Those contributing to the 2020 statement include
Ian Simmons,
founder of Blue Haven Initiative,
Jim Sorenson,
president of the Sorenson Impact Foundation, and several wealth management executives.
While the previous report had a long time horizon, the goal of this latest missive is to offer specific proposals that can be accomplished within two years.
“The times we are in are so dynamic, it was prudent to take a two-year look and say, ‘How can government encourage private capital for public good?’ at a time where we desperately need investment capital aligned with policy objectives and impact outcomes,” Seegull says.
The first series of proposals aim to strengthen existing policies and tools, including innovative tax policies such as Opportunity Zones and low-income housing tax credits, and to scale them to meet increasing needs throughout the country.
The goal is “to counteract decades of under-investment in marginalized communities,” Seegull says. “We think it’s really important to have a strong community-investing pillar when we think about public policy for the next administration and Congress.”
Impact investors are especially interested in strengthening communities decimated by the Covid-19 crisis, including those that didn’t benefit from federal Paycheck Protection Program loans, for instance. Many PPP loans weren’t issued to small businesses in low-income, rural, or tribal communities because they didn’t have established banking relationships with authorized institutions.
Specifically, the policy proposals call for: fortifying and scaling community development financial institutions (CDFIs) and minority depository institutions (MDIs); asking regulators to reassert the purpose of the Community Reinvestment Act (CRA) to “counter decades of explicitly racist banking practices”; and to renew and reform community investing tax policies so that they are transparent, accountable, and that their “incentives are aligned with community outcomes.”
To advance stakeholder capitalism, the USIAA is asking regulators: to require clear disclosure requirements of corporations on environmental, social, and governance (ESG) issues; to provide clarity to retirement plans, charitable endowments, and other investors on their ability to consider the long-term significance of impact factors; and to reinvest in American infrastructure and industry.
Among the alliance’s priorities is for the incoming Biden administration to correct the regulatory backsliding that’s occurred in the last six months of President
Donald Trump’s
administration. Sustainable investing strategies have lost regulatory muscle from rulings at the U.S. Department of Labor (DOL) and the U.S. Securities and Exchange Commission (SEC), and through CRA reforms, Seegull says.
Some of the policy priorities identified can be accomplished through executive action. Even if the Senate achieves a majority after two runoff elections in Georgia next month, it will be by a slim margin, making legislative reform more challenging—despite bipartisan support of impact investing.
One area where executive action is possible is in CRA reform. The outgoing head of the Office of the Comptroller of the Currency (OCC),
Joseph Otting,
last May issued rules that set back the community orientation of the CRA, Seegull says. But the Federal Reserve, which also oversees the CRA along with the Federal Deposit Insurance Corp. (FDIC), conversely issued a more community-supportive approach in its proposed rulemaking.
“We think the path forward is to work with the Federal Reserve approach, and we are encouraging convergence with the FDIC and OCC,” Seegull says.
Another big topic the Biden administration can address soon is a DOL ruling issued in October that limits the ability of retirement plan officers, or fiduciaries, to offer sustainable investments, saying plans should only consider the financial interests of investors. A second DOL ruling, issued last week, makes it difficult for retirement-plan investors to vote proxies that aren’t aligned with management.
Both rulings are “out of step with the evolution of the market,” Seegull says. And, she adds, “we know that ESG factors can mitigate risk and drive returns—we think it’s a breach of fiduciary duty not to take [ESG] material factors into account.”
To correct this backsliding, USIAA says the DOL can issue interpretive bulletins that would “help give comfort to fiduciaries who want to include ESG factors and want to vote proxies in a thoughtful way,” she says.
The alliance also hopes to reverse two SEC rulings, one on proxy voting, that similarly hamstrings the ability of investors to vote proxies against management, and a second that makes it harder for investors with small stock positions to bring shareholder resolutions.
Reversing these rules is important because it’s through proxies and shareholder resolutions that investors can have their say in ESG issues, Seegull says. “We know a majority of shareholder proposals are ESG-related—that’s a way to hold management accountable.”
The USIAA is also calling on the SEC to mandate ESG disclosure among publicly traded companies. Currently, corporations are required to disclose “material” factors to investors—that is, issues that could have an impact on the corporation’s business operations and results. But current regulations allow for subjectivity, and no company is going to disclose an ESG factor if they don’t have to.
But change is already afoot at the SEC. Two current SEC commissioners,
Caroline A. Crenshaw
and
Allison Lee,
have expressed support for increased ESG disclosure, and an investor advisory committee to the commission supports it as well, Seagull says.
The SEC is independent of Congress and the administration, but with current chair
Jay Clayton
planning to step down at year end, Biden will have an opportunity to select a new head who can make this happen.
“Biden has talked about the importance of environmental disclosure,” Seegull says. “We are hoping the SEC will take this up.” But, she adds, “we hope the SEC doesn’t stop at the ‘e’ in ESG, but that they also address the ‘s,’” as concerns with social practices have “never been more pronounced.”
