The question on which side of the Atlantic they live has a huge impact on how investors think about socially responsible investing. In short, European investors are much more likely than their US counterparts to incorporate ESG principles in their investment and manager selection processes. And they are also likely to believe ESG investing improves investment outcomes. Americans, on the other hand, think ESG is a drag on performance.
In the land that elected Donald J. Trump for president last year, a majority of investors (51.3%) do not incorporate ESG principles in their investment decisions at all. In Europe, the corresponding figure is just 15.5%.
Moreover, there is a hardcore group of ESG-haters in the US who believe ESG-based investing does not do anything to improve investment outcomes. Some 30% of US respondents think ESG investing has no merit whatsoever. In Europe and Canada, which was polled separately, this is less than 10% (see chart below).
Investors in Canada are much more aligned with their European peers than with their southern neighbours when it comes to ESG anyway, suggesting scepticism about ESG is something culturally ingrained in the psyche of the nation with the world’s biggest carbon footprint per capita [The editor of Expert Investor’s sister publication Fund Selector Asia, who happens to be American, recently wrote a scathing opinion piece about ESG investing. You can read it here].
Is the scepticism about ESG culturally ingrained in the psyche of the nation with the world’s biggest carbon footprint per capita?
Source of alpha
Europeans [and Canadians] really think more positively about ESG than Americans on all accounts: they are more likely to believe ESG is a source of alpha that improves performance than Americans (who think the opposite), and they overwhelmingly (80%) think ESG is a risk mitigator. Half of American investors, on the other hand, believe it’s not.
It’s probably of little surprise that European investors are much more inclined to increase their allocation to ESG-based strategies than Americans, even though the average European investors already allocates twice as much to ESG-based strategies than the average American.
As they generally consider ESG a force for good, European (and Canadian) investors also want regulatory authorities to persuade companies to provide better ESG-related information alongside shareholders. US investors, however, are wary of any government interference.