Regulations and public support are expanding in Europe ESG capital flows in Europe remain strong compared to the US Climate change coalition led by European companies
April 12 (Reuters) – Steady investor demand for environmentally and socially responsible investing and broader regulation in Europe is fueling political pressure that is pushing some U.S. peers back from the green agenda. We are helping Europe’s financial industry survive this.
In the United States, conservative politicians have reined in the marketing of environmental, social, and corporate governance (ESG) products, eased regulations that encourage ESG disclosure, and discouraged financial companies from coordinating efforts to curb greenhouse gas emissions. succeeded in preventing it.
However, Europe has so far largely resisted the anti-ESG trend due to growing political and consumer support for greener products and extensive regulations that support financial industry and corporate operations in the real economy. I am doing it.
In Europe, some politicians are actively working to loosen environmental regulations and laws, emphasizing the costs to consumers of going green. This has resulted in the watering down of some new regulations promoting ESG in Europe. However, capital flow data shows that Europe as a whole remains keen on ESG.
U.S. investors have experienced capital outflows for five straight quarters, and European investors hold seven times more capital in sustainable fund assets than U.S. investors, according to Morningstar data.
“Faster regulation has led to faster compliance, which has shielded European financial institutions from ESG headwinds,” said Nathan Abela, head of research at sustainability data tracker ESG Book.
According to ESG Book, the European financial services sector has 20 regulations and 25 voluntary guidelines related to ESG, compared to just two regulations and five voluntary guidelines in the United States.
In Europe, investor demand for ESG is also increasing due to the influence of public pension funds. Based on the 2023 LSEG survey, approximately 73% of European pension plans said climate change is an investment priority in 2023, compared to 53% of U.S. pension plans Opens in a new tab. The ESG efforts of European financial companies could prove crucial to the survival of pension schemes. International climate alliance. Initiatives such as the Glasgow Financial Alliance for Net Zero (GFANZ) and Climate Action 100+ have seen some defections from US companies, but European member states have largely remained intact.
This is important because most of our members are European. For example, the Net-Zero Banking Alliance, one of the GFANZ federations, has 71 European companies, but only nine from the United States. The Net-Zero Insurance Alliance has eight European companies and none from the United States.
Regulatory support
ESG has a strong regulatory framework in Europe, including the European Union’s taxonomy that defines climate-friendly investments. Other key EU regulations include the Sustainable Financial Disclosure Regulation, which requires financial groups to disclose sustainable investments, and the Corporate Sustainability Reporting Directive (CSRD), which applies to companies in the real economy. There is.
Europeans also tend to be united in their support for climate action.
A 2022 study by the nonprofit Pew Research Center showed that Europeans, regardless of their political leanings, are more likely to consider climate change a “major threat.” In the United States, the study found a wide divide in climate views between people on the right and left of the political spectrum.
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Camille Mohades, associate professor of economics and policy at Cambridge Judge Business School, said: “There is disagreement in the EU and Europe about the importance of this (ESG), but the disagreement is not as great as it is in the US.” said.
However, Europe is not immune to attacks on ESG regulation. The CSRD, and another law aimed at ensuring companies’ supply chains are environmentally friendly and protect human rights, has changed over the past year, targeting fewer companies and increasing the time it takes to comply. .
European investors’ demand for ESG is declining, but on a small scale. In Europe, new ESG fund creations fell by 10% in 2023, according to Morningstar, while the drop in the US was even more pronounced, dropping by 75%.
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Outflows from U.S. sustainable investment funds in the fourth quarter amounted to $5.1 billion, compared with $3.3 billion inflows to Europe, and assets under management in Europe were seven times larger than in the United States.
“What we’re seeing in Europe is that everyone continues to be very focused on ESG and how to put it into practice,” said David Zahn, head of sustainable fixed income at Reuters Graphics asset manager Franklin Templeton (BEN.N). That means we are doing it,” he said. Open a new tab.
But Zahn said ESG is not the only concern for investors.
“It’s not just ESG that they care about. They want portfolios that take ESG into consideration, and they also want performance, although there are probably some constraints.”
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Reporting by Simon Jessop in London, Ross Carver in London and Ira Binney in New York; Editing by Greg Romeliotis and Jane Merriman
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