Asset owners to swap US managers for European in response to ESG retreat

Two major pension funds have said they believe ESG will drive US managers to lose contracts to their European counterparts.

Speaking to IPE for a series of articles on the state of shareholder stewardship, AkademikerPension’s chief investment officer, Anders Schelde, reflected on the recent drop in voting and engagement activity by US managers.

In March, the Danish pension fund ended its relationship with State Street Global Advisors (now State Street Investment Management), citing the firm’s reduced support for environmental and social proposals at last year’s annual meetings as one of the reasons.

Other asset managers have been accused of similar climbdowns.

The trend is driven by regulatory and legal interventions in the US, as politicians seek to prevent investors from asking portfolio companies to improve their green and social credentials.

“Things are changing in the US,” said Schelde.

“Not so long ago, talking about sustainability as an investor only had positive consequences, so a lot of managers jumped on the bandwagon, even if it wasn’t in their DNA.

“But, faced with reality and the political situation, some are having to adjust their course.”

He said this creates a dilemma for asset owners, because issues such as climate change pose a growing risk to their long-term returns.

“It’s always difficult to choose a manager, but it could very well be that ESG becomes the deciding data point,” Schelde said, concluding: “In all likelihood, for future searches, we’ll end up with a European manager”.

Patrick O’Hara, the head of stewardship for UK pension pool LGPS Central, agreed.

“All else being equal, I do think we may see a trend of European asset owners favouring the appointment of European managers,” he told IPE.

While he believes some US managers remain firmly committed to ESG, O’Hara said there was a need for asset owner expectations to be “more explicitly articulated within Investment Management Agreements” when it comes to segregated accounts.

Ensuring mandate requirements are clearly defined by the client reduces the chance of sustainability decisions being politicised by regulators and lawmakers, he explained.

“Whether US managers will invest sufficiently in ESG resources to meet the standards expected by responsible asset owners remains to be seen,” said O’Hara.

“It is, after all, a global market, and for many managers, the extent to which they prioritise ESG will be a commercial decision.

“If their current client base is primarily European, or they see future AUM growth coming from Europe, they are more likely to ensure they can meet the evolving expectations of European asset owners.”

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