Despite Donald Trump's fossil fuel energy policy and setbacks in climate alliances in the US, professional investors on this side of the Atlantic remain committed to sustainability. A recent DIW study shows that the right framework conditions offer Germany and Europe long-term competitive advantages.
While America's government is abandoning net zero, European investors continue to focus on sustainability.
Sakorn Sukkasemsakorn / Getty Images / iStock
While former US President Joe Biden was still scrutinizing the plans to build several liquefied natural gas (LNG) terminals about a year ago because of their impact on the climate and the environment, his successor Donald Trump is putting his foot down on fossil fuels. He made Chris Wright, a top manager in the oil industry who denies climate change, his energy secretary. In addition to the increased use of domestic oil, the new political agenda of the White House aims to increase the production of US liquefied natural gas (LNG) and sell it to Europe. In the US, this is mostly obtained using the controversial fracking method. The possible environmentally harmful effects of LNG infrastructure are not considered in the current decisions in Washington.
US Banks and Asset Managers Leave Climate Alliances
Even before Trump officially took office, the major US banks and asset managers such as Blackrock and Vanguard withdrew from the climate alliances of the global financial industry in anticipatory obedience. The latter had even been sued by several Republican-led states for violating antitrust laws with climate protection strategies and measures. Some Canadian institutions have also followed the example of their US competitors and left the United Nations Net-Zero Banking Alliance. Even the US Federal Reserve (Fed) has left the Network for the Greening of the Financial System (NGFS).
Graham Steele, former Deputy Assistant Secretary for Financial Institutions at the US Treasury, called the Fed's withdrawal from the body a “response to short-term political considerations”. The Network brings together central banks, regulators and financial institutions from around the world to advance climate-resilient financial systems. According to the European Investment Bank (EIB), the work of the financial actors “serves to manage climate-related risks and direct financial flows to low-carbon and climate-resilient projects”.
European Investors Continue to Focus on ESG
Many professional investors in Europe and Asia continue to focus on environmental, social and governance aspects (ESG) in their portfolio allocation over the next 18 months, despite these developments. This is according to the “Professional Investor DNA Survey” published by fund manager Fidelity International in mid-January. Environmental factors are the top priority for 63 percent of the more than 120 institutional investors surveyed. Corporate governance (58 percent) and social criteria (51 percent) rank second and third.
When it comes to sustainability, the main issues are decarbonization, energy system transformation and the conservation of natural resources. According to the authors of the study, this focus reflects the decision of investors, but also of many political decision-makers in Europe and Asia, to achieve net-zero emissions targets. Despite the high relevance of the topic, 68 percent of respondents still complain about difficulties in measuring the impact of ESG investments, which is considered the biggest challenge. Inconsistent or changing regulations (52 percent) or the lack of high-quality ESG products (42 percent) – especially in Asia – are also cited by investors, as the following chart shows:
Fidelity asked about the biggest obstacles to ESG-compliant investments over the next 18 months.
FIL Investment Services GmbH
Further Reduction of Barriers to Implementation
“Our study shows that ESG is still on the minds of investors. Even though ESG investments are now integrated into asset allocation, further progress is needed to reduce implementation barriers,” emphasizes Jenn-Hui Tan, Chief Sustainability Officer at Fidelity International. This applies, for example, to the collection and analysis of high-quality company data and the handling of ESG regulations. ”There are still discrepancies here between the national, European and global regulatory frameworks.”
According to the professional investors, a positive ESG impact can best be achieved through impact investing (59 percent), exclusionary screening (52 percent), individual corporate engagement (44 percent) and government regulation (44 percent).
US Development Brings Opportunities for Germany and the EU
These results show that Germany and the European Union should not engage in a race to the bottom with the US on climate policy. According to a recent study (source in German) by the German Institute for Economic Research in Berlin (DIW Berlin), if climate protection is undermined under the Trump administration and conditions for sustainably oriented companies deteriorate as a result, this is an opportunity to strengthen the clean-tech sector and bring companies back to the domestic market. This will be possible if “the framework conditions here are right and, unlike in the US, there is political reliability,” according to DIW experts Claudia Kemfert and Frankziska Holz.
Investments in emission-free technologies contribute to the urgently needed modernization of industry through innovation. This is how competitive advantages and sustainable jobs are created in the long term. If the USA is already jeopardizing these, Germany should do better,” the study authors conclude, advising that ambitious steps be taken.
This is a partly automated translation of this german article.
