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RegulationJune 4, 2021

Sustainable Investment Legislation Re-Introduced in Congress

Dual bills would require fiduciaries to consider ESG factors in investment decision-making.

A group of Congressional lawmakers has reintroduced two pieces of legislation—The Sustainable Investment Policies Act and the Retirees Sustainable Investment Opportunities Act—that they say will “protect and increase sustainable investments.”

The group of four Democratic members of Congress, led by Michigan Rep. Andy Levin, says the bills would require large asset managers, plan investors, and fiduciaries to take into account environmental, social, and governance (ESG) factors in their investment decisions, and explain to their beneficiaries how they do so. The other supporters include Pennsylvania’s Brendan Boyle, Iowa’s Cindy Axne, and Illinois’ Jesús “Chuy” García.

The Sustainable Investment Policies Act is intended to promote transparency and disclosure by amending the Investment Advisers Act of 1940 by having large asset investment advisors file a sustainable investment policy (SIP) with the SEC. The SIP must describe what factors advisors are considering when they make investment decisions, and they must align with an ESG framework.

The framework includes, among other considerations, corporate political spending and decision-making; worker and collective bargaining rights; climate and other environmental risks; global human rights and diversity and inclusion practices; and the plan’s engagement with companies in which it invests, including proxy voting practices.

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Meanwhile, the Retirees Sustainable Investment Opportunities Act is intended to require plans regulated by the Employee Retirement Income Security Act of 1974 (ERISA) to adopt a SIP that explains how investment decisions will address considerations such as job creation, worker pay and benefits, human rights, climate change, and other factors. The bill also says that ERISA plans may invest plan assets in sustainable investments as long as it is in the plan beneficiary’s best financial interest, and does not compromise anticipated risk-adjusted returns.

“These bills make it easier for Americans to understand if their money is being invested in accordance with their values,” said Levin in a statement. “Fortunately, sustainable investing and profitable investing are not mutually exclusive. Companies perform better if they are aimed at where the economy is going, which is towards sustainability.”

The United Nations-supported Principles for Responsible Investment (PRI) praised the bills, saying that consideration of ESG factors is relevant to the fiduciary duty of prudence because those factors help ensure the long-term sustainability of an investment.

“The incorporation of sustainable investment practices relies on a clear, supportive regulatory environment,” PRI CEO Fiona Reynolds said in a statement. “Both the Sustainable Investment Policies Act and Retirees Sustainable Investment Opportunities Act help create that regulatory support by establishing sustainable investment as part of fiduciary duties.”

Look Out, Dollar: The Yuan Will Keep Surging, Says Ray Dalio

Just a minor player globally, the Chinese currency will expand its use a lot over the next decade, the hedge fund honcho predicts.

By Larry Light

The demise of the US dollar’s worldwide eminence has been foretold many a time. Still, it remains the globe’s reserve denomination. But watch out for a comer currency, whose rise will be faster than anyone expects.

That’s Ray Dalio’s take. The yuan will reach 5% to 10% of global foreign exchange reserves in five to 10 years, he predicted, versus 2% now. The dollar, according to the International Monetary Fund (IMF), has a daunting 60%.

No one is saying that the buck is in danger of losing its prominence as the world’s reserve currency, yet prognostications are abundant that China’s faster-growing economy will be bigger than the US’s come 2030 or 2035.

As a result, China will increase its sway in global trade and financial transactions as the years roll on, which will in turn boost the yuan, Dalio told CNBC.

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“So, on the margin,” said Dalio, the founder of Bridgewater Associates, the world’s largest hedge fund firm, the yuan will “become a more significant, a strong currency, stable currency, more attractive-returning currency, and also a more widely used currency.”

The rise of the yuan “will happen faster probably than most people expect,” the billionaire financier said.

Another factor aiding the yuan’s increased importance is Beijing’s efforts to digitalize the currency, thus boosting its use internationally. Dalio said the digital yuan would be “a very viable alternative” for investors. While he contended that the US would one day follow suit with a digital dollar, he cautioned that expanding American debt levels could temper that movement.

To succeed, the digital yuan would need to be accepted globally and buoyed by enticing Chinese interest rates, he added. The second condition already is a reality.

The 10-year Chinese government bond has a 3.1% yield, almost double that of the equivalent Treasury note. At present, however, China’s sovereign debt is not traded much beyond its borders. That, certainly, could change. Goldman Sachs Asset Management argued in a recent paper that China’s large bond market was “too big to ignore.”

Gradually, the foreign exchange field has changed to accommodate China. In 2016, the IMF added the yuan to its basket of major reserve currencies, also known as special drawing rights.

The near-term yuan-dollar picture is more complicated. Right now, the dollar has weakened—it‘s off 7% against the yuan since the start of 2020—meaning, of course, that the Chinese currency has strengthened.

The People’s Bank of China (PBOC), its central bank, in general doesn’t like the yuan to get too pricey, as it could hinder the nation’s export machine. with the pandemic’s seeming ebb, the Asian giant’s exports are roaring ahead. But the government’s cheaper-yuan desire is a policy that has been tempered lately, given the Beijing regime’s push to expand China’s consumer economy.