For all the talk about ESG, the U.S. is a real laggard.
With many U.S. money managers still struggling with the trade-off between generating returns and taking environmental, social and governance factors seriously, European firms have built a seemingly unassailable lead in the booming $40 trillion sustainable finance industry.
Europe dominates in the debt markets, where U.S. green bond sales fell 5% in a record year for global issuance, and in sustainable funds, where inflows to European offerings were about five times larger this year than investments in the U.S. Pricewaterhouse Coopers estimates that Europe accounts for almost 70% of global ESG mutual fund assets.
Washington's contentious politics are an impediment with global warming still a topic of heated debate. And regulation plays a role too: In Europe, green investment has been enthusiastically promoted, while President Donald Trump's administration has discouraged it. The U.S. Department of Labor recently passed a rule change that's designed to make it more difficult for fiduciaries of retirement plans to direct money to ESG-focused funds.
"It's more polarized in the U.S.," said Cathrine de Coninck-Lopez, the London-based global head of ESG at Invesco Ltd. "I've been surprised about how emotional it can get."
While the U.S. lacks the ESG infrastructure that Europe is developing, executives and analysts say it's just a matter of time before the movement gains momentum in the world's biggest economy. Devastating wildfires in California, combined with social unrest and income inequality, have pushed climate change and diversity toward the investing mainstream. Joe Biden's incoming administration also may give it a boost.
For now, the gap is most stark in green bonds. European issuers raised $160 billion this year as of Dec. 1, compared with $60.8 billion in the U.S., data compiled by Bloomberg show. In fact, U.S. issuance declined from $64 billion in 2019 because of a drop in sales of mortgage-related debt. Asia green bond issuance was $32.7 billion so far in 2020.
For all types of ESG bonds — which include green, social, sustainable and sustainablity-linked securities — Europe's lead has been growing. European issuers sold three times more of these bonds this year than their U.S. counterparts, Bloomberg data show.
The European tally was $254 billion, while issuance was $79.2 billion in the U.S. and $77.2 billion in Asia.