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US ESG skepticism faces opposition from major player

A US goverment bill aimed at forcing pension companies to prioritize returns over sustainability triggers protest from the world's third-largest asset manager.

State Street Global Advisors has around EUR 2.5trn in AUM. Photo: State Street/PR

The world's third-largest asset manager, State Street Global Advisors, has sharply criticized US authorities due to a bill proposing that pension managers' use of sustainability criteria must not impede returns, reported the Financial Times this last weekend.

In late June, the US Department of Labor proposed legislation that private pension companies must henceforth demonstrate that they are not sacrificing financial returns by undertaking investments based on environment, social and governance (ESG) criteria.

Protests all around

Several institutional investors have already encouraged the US Department of Labor to ditch the proposal – and now a strong player echoes the criticism, writes the newspaper.

State Street Global Advisors, a subsidiary of Boston Bank State Street Corporation, has around EUR 2.5trn in assets under management.

"Addressing material ESG issues is good business practice and essential to a company’s long-term financial performance — a matter of value, not values. We seek to capture these drivers of long-term shareholder value for our clients." wrote State Street Deputy Chief Investment Officer Lori Heinel and General Counsel Katherine McKinley in the letter.

The use of ESG criteria in relation to investment decisions has practically become the norm in Europe, as companies are growing to accept that climate change issues and poor management can negatively impact companies' financial results in the long term. However, the ESG trend has faced backlash in the US, for instance, with the recent bill.

ESG is due diligence

State Street told the DoL the agency was confusing 'impact' with ESG investing. Impact investments target beneficial effects, whereas ESG investing is also concerned with taking other financial factors such as risk and returns into account.

State Street Global Advisors also warned that the department has crudely underestimated the costs of implementing the requirement companies need to prove returns are not negatively affected.

The New York Department for Financial Services has even warned that the new bill is more likely to undermine the security of the pension savers than to protect it.

English Translation: Nielsine Nielsen

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