US fund houses have been slow to meet ESG standards for alternative investments, with European firms leading the way.
Commitment by US alternative investment managers to environmental, social and governance (ESG) standards is still lagging, with Europe leading the way, according to LGT Capital Partners, a leading wealth and funds firm, based in Liechtenstein.
Almost three-quarters (73 per cent) of private equity managers have robust ESG management processes today, compared to just 27 per cent in 2014, according to LGT Capital Partners’ ESG report.
Europe leads the way, with 87 per cent of managers rated either “excellent” or “good”, up from 82 per cent last year. But the US is progressing much more slowly. Only 16 per cent of managers achieved the “excellent” rating, up from 13 per cent in 2023.
An “excellent” rating indicates the manager is genuinely dedicated to ESG, with established institutional processes in place. A “good” rating signifies the manager is actively working to integrate ESG considerations, though some gaps may still exist.
Things have changed
But a stagnation, particularly in the US, has been noticed by researchers, according to Tycho Sneyers, managing partner at LGT Capital Partners and an advocate for responsible investment. He believes things have changed over the last two years, especially since the ‘greenwashing’ backlash.
“In the US, there is a lot of regulatory pushback towards ESG, and that makes it, for certain managers, even more challenging to engage on the topic,” he says. This is “unlikely” to change in the foreseeable future. And there are historical reasons for the differences, believes Mr Sneyers.
“Europe has always had a different view on capitalism,” he says. “We’ve had much more of a stakeholder capitalism versus the US, where it was much more shareholder capitalism.”
In 2023, more than 150 anti-ESG bills and resolutions were proposed in 37 US states, and at least 40 anti-ESG laws were enacted in 18 states.
Pressure from investors also differs between the two regions. “There’s been a lot of pressure from northern European pension plans to push the ESG agenda, and in the US, that’s different,” says Mr Sneyers, acknowledging there has been progress by some states, including California.
Bipolar environment
A complex world is making things even more difficult: “We moved really from a uni-direction to now a much more bipolar environment.”
In 2023, Amazon, BP, Shell and other companies, as well as some investment companies, began reversing previously stated climate commitments. At the same time, the UK retreated from some key climate goals.
A lot will depend on what happens in the forthcoming US election, he warns. “The world is not decarbonising as fast as it should. In the US, there is a growing community that is trying to pull things backward.”
The war in Ukraine heightened the backlash against ESG, as oil and gas stocks spiked and became very profitable, with the investment community appreciating the lucrative nature of fossil fuel holdings.
The report also shows that greenhouse gas emission monitoring has increased globally, with 56 per cent of private equity managers tracking emissions in 2024, compared to 48 per cent in 2023.
Awareness of diversity, equity and inclusion (DEI) also continues to grow. In 2024, 74 per cent of managers had their own DEI policy, up from 60 per cent the previous year.