June 13, 2023

Congressional Sustainable Investing Caucus

There are $8.4 trillion in U.S. assets under management in funds that prioritize environmental, social and governance (ESG) factors. This represents 13 percent – or 1 in 8 dollars of the total US assets under professional management. Globally, the value of assets engaged in sustainable investing is estimated at $41 trillion. It has grown rapidly and is projected to exceed $53 trillion by 2025, representing more than a third of the $140.5 trillion in projected total assets under management.

Given the rapid growth of this asset class, it is necessary for Congress to better understand and monitor this space so we can ensure robust investor protections while still preserving necessary market access. For that reason, we created the Congressional Sustainable Investment Caucus.

Sustainable investing is not a new concept. For over a decade, U.S. retail and institutional investors have considered ESG factors in their investment decisions.

This approach helps investors secure insight into issues that are important to their capital allocation strategies but are not always fully or consistently disclosed in corporate reporting. These issues include but are not limited to climate change, diversity, and labor rights. Investors believe these issues are material and need to be accounted for when assessing market opportunities and risks.

Recent research suggests some sustainable investment strategies achieve comparable or even better financial returns than conventional investments over the long term. However, the justification for ESG investment is not solely dependent on value. It is no less rational to choose to maximize ESG criteria over expected returns than it is to choose to ‘shop local’ rather than favoring cheaper imported goods. A vibrant, free market does not optimize to a single utility function.

However, investors face significant challenges obtaining consistent and comparable ESG reporting data. There is no correlation between the ESG ratings received by individual companies across multiple rating agencies. This is an inevitable result of a lack of consistent and objective ESG standards.

Recognizing this regulatory gap, in the 117th Congress, the House of Representatives passed Rep. Vargas’ Corporate Governance Improvement and Investor Protection Act, a legislative package that included Rep. Casten’s Climate Risk Disclosure Act. These measures directed the Securities and Exchange Commission to require publicly traded companies to disclose information pertaining to ESG performance metrics and have led to the SEC’s rulemaking proposals on standardized climate disclosure and ESG disclosure by funds.

Investors need and want this information. A recent Morgan Stanley survey found that over 80 percent of investors plan to implement sustainable investing strategies in their portfolios. An overwhelming majority of asset owners desire ESG related reporting and disclosures.

Given these needs, we are troubled by the recent politicization of sustainable investing, which has led to misinformation and interfered with robust, open-minded policy discussion.

We formed the Congressional Sustainable Investment Caucus to examine these issues outside of the politicized lens of a committee hearing. Our purpose is to solicit the best expertise from the nation’s investors, fund managers, companies, and regulators, to better inform policy making that provides transparency of information to all market participants.

We are primed to lead the Congressional Sustainable Investment Caucus and ensure that investors and businesses will always have a free market advocate in the People’s House.

Rep. Juan Vargas, D-C.A and Rep. Sean Casten, D-I.L., both are members of the House Financial Services Committee.

By:  Reps. Sean Casten and Juan Vargas
Source: Congressional Sustainable Investing Caucus