U.S. debt investors as climate-focused as European peers, survey finds

By Tommy Wilkes

LONDON (Reuters) – U.S. asset managers factor greenhouse gas emissions and other climate risks into their debt investment decisions as much as peers in Europe, according to a survey released on Tuesday, despite the Republican campaign against climate-focused investing in the United States.

Nearly a third of North American fixed income managers surveyed have underweighted investments they consider to have high carbon emissions and 16% have excluded them from portfolios, slightly more than the equivalent percentages for European managers, the survey published by NatWest found.

The British bank asked 225 debt investors about their commitments to reach global net zero emissions goals and how it influences their investment processes.

It also found that more than half of North American asset manager respondents said that they had made a commitment to reach net zero across their portfolio because it was the best approach for delivering investment returns and reducing risk.

The U.S. financial industry is facing a significant pushback, led by Republican U.S. politicians, against using environmental, social or governance-related (ESG) factors to decide investments, arguing it can hurt returns and the fossil fuel industry.

Some state governments have even pulled cash from asset managers over their ESG stance, raising concerns the Republican policies could have a chilling effect on investors who want to decarbonise their portfolios.

Caroline Haas, NatWest’s Head of Climate and ESG Capital Markets, said the survey showed that American investors had in fact caught up with European peers in integrating emissions into decision-making despite the Republican campaign in the United States.

“We are going to be seeing some greenhushing but the work isnt stopping,” she said, referring to the conservative backlash.

“Given the environment they are clearly less vocal, but many of them are quite advanced in relation to the integration and stress testing they need to do,” said NatWest’s Arthur Krebbers, Head of Corporate Climate and ESG Capital Markets.

The survey also found that few debt investors assess climate-related physical risks sufficiently.

Just 18% consider the impact of risks such as flooding or drought for all of their investments, the survey showed. When managers do consider physical risks, 40% only do so for developed markets and overall just 16% of assets under management has been assessed for physical risk, NatWest found.

“The financial risks are still not quantified as they need to be,” said Haas.