ESG Bigger in Europe Than in US

Investors in the US are far more skeptical of ESG than their European counterparts

When it comes to environmental, social and governance (ESG) investing, investors in the United States are far less accepting than their European counterparts, according to a new survey from RBC Global Asset Management.

The survey finds that two-thirds of institutional investors use ESG considerations as part of their investment approach, and 25% expect to increase their allocation to managers with ESG-based investment strategies within a year.

And yet, investors in the U.S. are still lagging behind their European counterparts when it comes to ESG investing.

According to the survey, a full 67% of global respondents use ESG principles as part of their investment approach. By region, more investors in Europe (85%) than in Canada (73%) and the US (49%) incorporate ESG analysis. 

And while 25% of survey respondents plan to increase their allocation to ESG investment strategies within the next year, the U.S. lags behind. According to the survey, U.S. adoption, which is 25%, is far behind Europe, where that figure is 49%.

Even where U.S. institutions are adopting ESG strategies, they appear to be doing so more cautiously than their European counterparts.

When asked to what extent ESG principles are used as part of their investment approach, only 12% of U.S. respondents said they “significantly used” ESG principles versus 45% in Europe. More Americans (37%) said they “somewhat used” these ESG principles.

In the U.S., 50% of respondents who use ESG factor it into less than 20% of their portfolios. Meanwhile, 43% of Europeans factor it in more than 80% of their portfolios. 

During a panel discussion hosted by RBC GAM, Kate Starr, chief investment officer at Flat World Partners, explained why Europe may be so further ahead in adoption of ESG.

“For the last decade people would say, ‘well Europe is so far ahead,’” she said. “Well really why? And when you think about it, what’s been happening in Europe is they’ve been more focused in their economies and in their companies and in their commercial propositions around these things. And so the investment has followed.”

Other data points from the survey suggest why this gap exists. Across nearly every question posed by the survey, asset owners in the U.S. appear more skeptical of the value of ESG than their counterparts in other regions.

According to the survey, 28% of U.S. respondents think ESG mitigates risk, 50% do not and 23% are not sure. By comparison, 77% of Europeans and 68% of Canadians see ESG as mitigating risk.

The survey also looks at how many respondents think ESG is a source of alpha and finds that 17% of U.S. respondents think ESG provides alpha, compared with 51% of Europeans and 21% of Canadians.

According to the survey, only 5% of U.S. respondents expect ESG investments to perform better than non-ESG investments; 26% percent expect them to perform worse; and 69% expect them to have no influence. To compare, 40% of Europeans and 24% of Canadians expect ESG investments to perform better than non-ESG investments.

RBC Global Asset Management surveyed 434 institutional asset owners and consultants in the United States, Canada and Europe for its second annual survey of institutional attitudes and perceptions of responsible investing.

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