Institutional Asset Manager Newsletter 24.05.24

US falls behind in climate investing

Sustainable investment has been used as a political football in the US for some time, with lawmakers submitting hundreds of anti-ESG proposals designed to either limit state fund managers’ usage of relevant data, or punish those companies deemed to be boycotting certain industries.
While relatively few have passed onto statute - as of April 2024 only 37 bills in 17 states are now law, according to the Pleiades' Strategy Survey – the impact on investor behaviour in the US is still profound.
This week we bring you Robeco’s fourth annual survey of 300 investors which reveals just how far behind the rest of the world the US has fallen on climate investing.
According to the research, only 35 per cent of North American respondents say they prioritise climate investing versus 62 per cent of all those surveyed who say climate change is at the centre of, or is a significant factor in, their investment policy.
US investors are also less likely to engage with investee companies on ESG issues. Robeco finds that 55 per cent of North American investors are not taking any engagement actions, compared to 22 per cent in Europe and 26 per cent in Asia-Pacific.
Robeco’s Climate and Biodiversity Strategist, Lucian Peppelenbos, attributes this poor shareholder engagement record directly to the backlash to ESG investing in USA, "where the topic has become controversial and divisive, leading investors to become more guarded and cautious on it".
Given that sustainable funds outperformed their traditional peers across all major asset classes and regions in 2023 according to Morgan Stanley research, and there is widespread support from the American electorate for progressive climate change policy, the anti-ESG movement seems not only financially dangerous but also politically misguided.
Elsewhere we stay with sustainable investment, but switch focus to the UK with an article from Jessica Reed, Partner, and Kya Fear, Senior Associate at Farrer & Co who analyse the possible impact of extending anti-greenwashing rules to portfolio management.
The Financial Conduct Authority is consulting on whether the Sustainability Disclosure Requirements (SDR) regime should cover bespoke and model portfolios for retail clients.
The watchdog is eyeing a December 2024 deadline for bringing in the changes, which as Reed and Fear note does not give firms much time to prepare.
However, despite the potential rush, introducing SDR across the board is an important step for improving the integrity of the sustainable investing landscape. The Robeco research shows that a lack clear guidelines and frameworks is among the biggest challenges for investors when seeking to take account of decarbonisation in their investment portfolios.
As Robeco’s Peppelenbos concludes: "Investors need support from regulators and policy makers to create the right conditions and to support sustainable investing.".

Gill Wadsworth, Editor, Institutional Asset Manager
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