ESG in Europe
Europe is currently leading the way globally on ESG, in terms of both the attitudes and policies of businesses with regards to this field, and the development of ESG-based regulations by regulatory bodies.
The EU Sustainable Finance Disclosure Regulation (SFDR) is a set of EU rules designed to standardise reporting on the ESG profiles of funds, so that they can be better understood by investors. The SFDR and other regulations are also aligned with the European Green Deal, which aims to make the EU carbon neutral by 2050.
The EU accounts for half of all global ESG-based investments. While this proportion has fallen in recent years as other global regions have begun to catch up, Europe remains ahead by a significant margin.
ESG in the United States
The European Central Bank and European Securities and Markets Authority have already created climate-related stress tests for the institutions they govern. These tests are designed to see how these institutions will withstand different types of climate-related pressures. However, a lack of comparable regulation exists in the US and firms are not tested to the same degree, opening the door to greenwashing.
Cultural forces are also influencing perceptions of ESG in the US, with anti-ESG sentiment making waves across the nation’s financial services industry. US states that include Texas, Florida and Indiana have passed anti-ESG laws, resulting in several high-profile court battles. Conversely, pro-ESG legislatures are facing increased pressure to protect ESG standards and policies.
This rancour has been stoked by the notion that asset managers are attempting to impose a political agenda on investors, to which they may not subscribe, while also potentially jeopardising their investment returns. Debates about whether asset managers should make values-based judgements or simply focus on delivering returns for their clients are rife.
Against this backdrop, many asset management firms on both sides of this debate are claiming that their ESG investment strategies are largely client-driven, rather than deriving from any form of moral grandstanding. In this febrile atmosphere, asset managers are treading carefully and attempting not to alienate their client bases.
ESG sentiment plotted state-by-state, based on current and proposed ESG regulations (as of 10.10.22)