In this article, we provide a focus on the US – reflecting on conversations with Investors, from our recent US ESG Investor roadshow, which explore their views on various aspects of the ESG landscape and how they are approaching recent developments as an organisation.

Regulatory / Institutional environment:

• Investors noted that 2022 has been an uncharacteristically active year for the Securities and Exchange Commission (SEC)regarding policy initiatives on sustainable finance and welcome their stance on tackling greenwashing 
• 67% of investors consider firms in their portfolio to be poorly prepared to report on the SEC climate disclosures proposals, also leaving fund managers generally poorly prepared regarding the SEC’s investor disclosure proposals
• Approximately 43% of investors’ fixed income funds fell into the “ESG Integration” category following proposed new SEC guidance 
• When asked about the upcoming midterms, 60% of investors agreed that a Republican controlled House and/or Senate would lead to less progress on climate change legislation while 40% agreed there would be no change

Product Development

Sustainability-Linked Bonds (SLBs)

• Some investors commented that they favour Use of Proceeds instruments compared to SLBs as projects are ring-fenced and can see a transitioning of business model.
• One investor highlighted that issuers in the US & Canada have been taking ‘low hanging fruit’ with respect to key performance indicators (KPIs), yet are looking for a greenium, which is not deserved. However, they do see the landscape changing with KPIs and targets becoming more robust and aligned to climate science.
• The publication of the International Capital Market Association’s (ICMA) registry of over 300 sector-specific KPIs is helpful in providing guidance as to which KPIs within an issue, should be considered core or secondary.

Greenium

• Investors were split with regard to the future trajectory of the greenium, with 40% of investors expecting it will grow, 40% expecting it will tighten and 20% expecting it to remain the same.

ESG Integration

Data availability

• Investors cited data availability as one of the biggest challenges when screening investments based on related ESG criteria 
• When answering RfPs for new business or fund mandates, investors commented that ESG Integration and Engagement Policy came up most often in questions
• Many investors noted the use of third-party data agencies (e.g. MSCI, Sustainalytics, ISS) to develop their own proprietary scores as they do not think individual ESG agencies provide a robust enough view and prefer to develop their own ESG scores based on material issues they assign to the sector

Macro / regulatory factors

1. In your portfolio, how prepared do you think firms are to report on the proposed SEC climate disclosures?

2. How prepared do you think investment managers/advisers are to comply with the proposed SEC ESG disclosure requirements for funds and related expansion of the naming rule?

3. Approximately what % of your fixed income funds fall into the following categories (following proposed new SEC guidance)?

4. What impact could the mid-term elections have on climate change legislation and broader momentum in the US if the Republicans took control of the House and/or Senate?

ESG investing trends / performance

5. Through the recent turbulence, how have your sustainability funds performed compared with conventional funds?

6. When answering RfP’s for new business or fund mandates, which two ESG areas come up most often in questions?

7. What is the biggest challenge for ESG investing in the US market?

8. How do you expect the greenium to develop?

We’ll provide regular updates on frequently asked questions posed by investors, to keep you up-to-speed with their most current views. So, please do regularly check our Insights Hub for updates.