ISIA Requires Every Illinois 'Public Agency' And 'Governmental Unit' To Implement ESG Policies In Their Investments: Action Steps For Private-Sector Actors

Author:Mr Nathaniel Marrs, Jesse Medlong and Katherine Thoreson
Profession:DLA Piper

ESG − that is, the consideration of environmental, social, and governance factors in choosing investments or operating businesses − has become a hot topic in the investment world. ESG comprises a broad category of factors ranging from environment sustainability to the protection of human rights in supply chains. But much of the focus has been on factors related specifically to environmental impacts contributing to climate change. Activist investors and some private investment managers have led a charge toward sustainable investment, and now governments are taking an interest in how ESG considerations affect the long-term value of their assets. This article addresses a recent notable development in Illinois, where a new state law makes ESG a key part of that state's investment decisions.

Allowing ESG factors to influence investment strategy is a big shift from the traditional paradigm that focuses primarily on shareholder value above most other considerations. But according to Goldman Sachs, “ESG and impact investing has moved into the mainstream, and we believe that now is the time to rethink how we talk about the field.” Goldman has pledged to invest $150 billion in clean energy ventures by 2030. Blackrock has taken a similar interest in ESG polices, declaring an “increased commitment to integrate sustainability across its technology platform, risk management and investment strategies,” including by exiting investments in industries like thermal coal. Blackrock's Davos brief noted that “[g]rowing interest in sustainability and a shift in society's preferences . . . could lead to a transformation in investor behavior—and a major, yet gradual, capital reallocation.” And last year, Salesforce released a detailed report on ESG-related issues and committed to planting one trillion trees in the next decade.

Governments are a critical component of this ESG momentum. As institutional investors, their collective assets represent an enormous sum, and they are beginning to consider ESG as an important component of their investment policies. The European Union has been an ESG trailblazer. In October of 2019, the EU passed a law requiring financial servicers to disclose material sustainability issues with investments. The EU also requires benchmark-value administrators to consider ESG factors in determining investment value. In the US, state pension funds like CalPERS in California and the New York State Common Retirement Fund have voluntarily adopted...

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