ESG market dynamics: The view from America

November 21 2019

Dr Arthur KrebbersHead of Sustainable Finance, Corporates

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Any budding international artist knows: you haven't truly succeeded until you've make it in the US. The same is true for sustainable finance: it needs to "crack" the American market to become a truly global and sizeable asset class.

So, how green is Uncle Sam?

A couple of initial observations from my recent cross-American road trip:

  • Market participants broadly agree that we are reaching a tipping point in the US market, where sustainability is becoming a mainstream concept for issuers and investors. Both are starting to invest in environmental, social & governance (ESG) expertise, both in terms of personnel and support from external data providers.

  • Investors are still mostly focused on exclusion / norms-based approaches, emanating partly from church investors. Such end clients are not yet calling for more sophisticated carbon impact approaches - as remain reluctant to sacrifice returns for any green dividend.

  • Amidst lack of co-ordinated (i.e. USA-wide) initiatives to co-ordinate sustainable finance standards, frustration that investment criteria and approaches being implemented differ widely. "Every RfP we get has different ESG questions" bemoans one account. The best common denominator often relates to UN Principles for Responsible Investment signatory status.

  • Companies see any sustainability disclosure / issuance products as more of a legal consideration than in Europe - given the highly litigation-oriented culture. This makes some reluctant to embark on a green bond (offering the market various commitments) and want to focus more on controlling their overall ESG narrative to the market - e.g. through improved Investor Relations and ESG agency engagement.

  • Greater nervousness around government involvement in pushing for this asset class (e.g. subsidies, taxes, green government bonds). Sense that the "capitalist" solution involves a bottom-up push from individual clients - such as is occurring with the Millennial generation.



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