Responsible investment in the US has lagged behind Europe because of an antipathy towards environmental, social and governance factors, according a partner at alternative asset manager, Pantheon.
Alex Scott, speaking at a morning briefing, said the US market is still a lot more polarised in its approach to ESG, despite evidence that it does not negatively impact returns.
Currently Pantheon has almost 7,000 underlying portfolio companies which have maintained an approximately 12% annualised net asset value growth since the firm signed up to the UN’s Principles of Responsible Investment (PRI) framework in 2007. Half of the world’s institutional capital, some $86.3tn, now belongs to signatories of the framework, according to PRI’s own data.
"In Europe there is a lot more consensus about the important ESG factors and environment and carbon emissions," said Scott. “The US market is a lot more polarised. You've got some state pension funds, you’ve got some ultra-high net worth [individuals] and some foundations that are leaders in this. At the other extreme, you’ve got some antipathy towards ESG factors because it’s seen as a cost and it’s seen as a left wing agenda.”
Larger funds are able to accommodate ESG considerations a lot easier than smaller managers, Scott added.
“You have some who are really on board and you have some US small-cap private equity managers, who don't really understand it or don’t feel the impulse to do it because the investors are not leaning on them to do it,” he said.
Indeed, a study that was published earlier this year by asset management firm LGT Capital found that the largest firms, those with more than €5bn in assets, received the highest rating for having institutionalised processes in place to invest in line with ESG principles.
Part of the challenge of combating scepticism around ESG is the subjective nature of its definition.
“There's no legal definition of what is a material ESG issue, because no matter how objective we try to make it, ESG is always subjective,” said Scott. “What we’re aware of is an emergence of new technologies and new business models that one needs to be wary of, because what seems sensible today could actually deviate quite easily.”
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Originally posted: https://www.penews.com/articles/us-market-slower-to-embrace-responsible-investing-20191004