“The US has some very unique issues”, an ex-PRI employee told me at one of many meetings with the investment industry in New York City over the past two weeks.
The murder of George Floyd is painfully felt in the city, along with drastic wealth inequality, the ‘Great Resignation’ and disparate state governments. These different social priorities certainly seem to have led to a sustainable investment landscape in the country quite different from that in Europe.
At the end of last year ESG Clarity launched its global website, bringing together our ESG coverage in the UK and Europe, Asia and the US. Where we have been a leading voice for fund selectors in the UK and Europe since launching in 2018, this year we’ve turned our attention to our US coverage – expanding our on the ground editorial team and flying over to meet asset managers, ratings agencies, analysts and industry bodies.
On the one hand, these social tensions in the US put the ESG investment industry ahead of the game in some areas. For example, EEO-1 reporting: equal employment opportunity report that is mandatory for companies with 100 employees or more. It gives asset managers a great place to start engagements and voting decisions on diversity and inclusion. Although it’s not perfect, as one Goldman Sachs stewardship employee told me, it certainly seems ahead of the painfully slow progress we’ve seen on mandating ethnicity pay gap reporting in the UK recently.
Another area the US appears to have more focus is on political spending disclosure. It’s an election year this year, and US investors certainly seem to be more willing to flex their voting muscles in areas such as this, several industry members told me. Look out for ESG Clarity’s article on voting priorities on the ESG Clarity US website soon, and have a read of our recent reporting of PRI and OECD reports on this topic here.
Amid the ‘Great Resignation’, which has hit the US particularly hard, there has been a renewed focus on good company governance, which, while often receiving the least attention in Europe, has been part of “just sound investment” in the US for some time, many groups have said.
But on the other hand, pretty much everyone I have spoken to so far has highlighted how behind ESG investing in the US is on climate issues. One reason for this is regulation and the differences between state governments. During one meeting I had, the SEC was described as a “one-man crusade” to pass ESG rulings, while being blocked by certain states. Currently, the SEC is considering a requirement for ESG claims made by investment companies and advisers and has on its regulatory agenda a note that it is considering “rule amendments to enhance registrant disclosures regarding issuers’ climate-related risks and opportunities”.
Lack of awareness and education around climate investing among clients has also been cited many times, and ESG Clarity US will be making sure to publish the latest commentary and thought leadership in this area in the coming weeks and months. The need to hold conversations with “financial performance first, environmental impact second” is still very much felt, with scepticism around the financial benefits of investing sustainable still prevalent.
Company innovation and the “American nature for competition and capitalism” as one investment manager called it, are likely to be the driving force behind ESG progress, rather than regulation and policy. And here, as Goldman Sachs manager Alexis Deladerriere explained in his upcoming Green Dream video with ESG Clarity, the US is not short of opportunities in areas such as renewables, electric vehicles and so on.
Naturally, this means more ESG investment products – a trend in which Europe and the US are not so different. Already in my two weeks here Amundi has rebranded its global equity fund, managed in the US, to be labelled sustainable, RadiantESG launched a small- and mid-cap US companies strategy and Bamboo Capital launched an impact fund. It might not be the onslaught of fund launches we saw in Europe earlier this month, but with sustainable fund launches up 70% in the US in 2021, a slowdown doesn’t seem likely.
In the end, I’m sure it will be these similarities, as opposed to the differences, that bring ESG investing forward globally, and ESG Clarity is excited to keep bringing you the latest news and views from across the globe.
I will be in the US until 25 February so please get in touch on natasha.turner@bonhillplc.com if you would like to chat.
