Europe will remain at the forefront of ESG (environmental, social and governance) standards, although the US and certain Asia-Pacific countries are starting to catch up with the EU, three financial executives stated.
The comments came during the “Walking the talk: Are financial services meeting their sustainability goals?” online panel on Friday, part of the British Chamber of Commerce for Luxembourg’s leadership forum on “Building a Sustainable Future” taking place between 7 and 13 October.
One challenge for alternative fund firms is that quantitative ESG data is “very subjective”, Antonis Anastasiou, managing director, Alter Domus Management Company and member of the ESG committee, in Luxembourg, said during the panel. He said the need for industry-wide benchmarks was pressing.
While some reliable key performance indicators can be found for real estate, renewable and infrastructure assets, the same cannot be said about the investments made by private equity and private debt funds. The vast differences in the types of assets make it particularly tricky, he observed.
Twelve months ago, Anastasiou thought the industry was “very far away” from producing robust data sources, while today he sees “a lot of development” in the field.
Caroline Haas, head of climate and ESG capital markets, NatWest Markets, in London, reckoned that Europe was “at the forefront” of implementing ESG criteria, compared to the US and Asia. However, compared to two years ago, ESG is placing much “higher on the agenda” in the US. Over the last six months, she said, investors in the US and Japan, for example, have been taking ESG “strongly on board”.
Europe’s green investing taxonomy will remain the world’s most influential standard, the panellists agreed. The UK’s coming version will be built on the EU framework, but adapted for Britain, said Haas. While we “won’t see a US taxonomy”, market players are definitely “looking at” the EU model, she commented.
Maria Cristina Boscolo, director of wealth structuring solutions, Lombard International, in Luxembourg, concurred that “the European model will be taken as a mould” in the US and Asia, although it will not be adopted wholesale. Uptake outside of the EU, she reckoned, was “driven more by investor needs” than by regulatory pressure. However, she noted that the US Securities and Exchange Commission had recently issued guidance on incorporating ESG schemes in listed companies.
Looking at the Asia-Pacific region, Anastasiou said Australia and New Zealand were “far advanced” in ESG. He also predicted that there will be “clear alignment” on ESG standards across major markets in the coming years.
Shift from short-term thinking
Another handicap for responsible investing is that there is little quantification of the benefits, and what is measured today is based on quarterly results and not long-term returns, argued Haas.
That said, Haas concluded on an upbeat note, recounting a recent meeting with a major PE firm. One manager told her they had stepped up ESG efforts “because it’s good for business.”The panel was opened by Sara Speed, vice chair of the BCC council and member of its financial services group, and moderated by Delano’s Aaron Grunwald.