Changes in the US political sphere, along with increasing investor demands, have brought to the forefront some of the challenges of ESG (environmental, social, and corporate governance) and made it clear just how valuable tools to measure impact will be in the coming years.
In a recent article published by JTC written by James Tracey, JTC’s Managing Director – Guernsey and Tim Clipstone, Partner at Ogier, the authors discuss how the United States may be poised to see an influx in foreign impact investment, using Guernsey’s recognized compliance standards and ability to undertake US tax reporting as an example of the benefits of certain jurisdictions served by JTC that are advantageous for domiciliation in the ESG space.
The Biden Administration, they say, is “certainly more pro-green and this may help remove some of the regulatory and political roadblocks to ESG investment the US investor market has seen to date, and see a reversion to promoting ESG investment strategies.”
Tracey and Clipstone view this as good news for cross-border investment, as the US has “lagged behind over the last four years compared with European, Asian and other developed and developing countries.”
While the government may provide additional incentives in the future, a change in thinking has also come about from the COVID-19 pandemic. Using Blackrock CEO Larry Fink as an example, the authors highlight how “investors are focused on the long-term, sustainable, opportunities of creating value to benefit communities and the global economy.” Investors now see social responsibility as a key component of investments that will be viable in the long-term.
But not everyone in America is convinced. In a recent study from RBC Global Asset Management, the percentage of American investors who believed ESG-integrated portfolios performed as well as or better than others was only 74%, compared to 96% in Europe. The numbers appear to be on the Europeans’ side, but the question remains: how do funds prove to potential investors that ESG-centric projects will be both profitable and impactful?
The answer is twofold: first, they have to prove their projects turn a profit. This is always a concern for funds, and accurate data is crucial. Second, they have to prove that their claimed impact is real. This is much more difficult, especially when dealing with the “S” in ESG, or social impact. How do you measure a concept like this?
If a fund cannot show that its investments are effective, this may affect the renewal of government initiatives, whether the investment qualifies for certain tax incentives, or whether that particular investment should be counted when trying to tabulate whether or not ESG projects really do perform at the level of other investments.
JTC Americas is uniquely positioned to handle the increased demand for data surrounding these projects. Working with Howard W. Buffett and utilizing his Impact Rate of Return (iRR®) framework, JTC provides funds with actionable data on the effectiveness of projects. This places its clients well ahead of the curve when it comes to proving their success in terms of both returns and social impact. As savvy investors want more information faster, JTC Americas can help managers provide that information with industry-leading technology.
Investors from all over the world will want to invest if the US market continues to be ripe for ESG investment, and funds that look to the future will be ready to meet the demand. JTC Americas can help clients select the right domicile for receiving foreign investment, and its impact-reporting technology can help them show their investors how effective their projects really are.