The emergence of ESG (Environmental, Social, and Governance) and impact investing is attracting increased private capital worldwide, but North American and European investors encounter distinct obstacles when it comes to sustainable investing. In Europe, the main challenges revolve around regulations, while in North America, the prevailing concern is the perception that sustainable investing could lead to negative returns. As per insights, ESG is more widely accepted in Europe than in North America. In Europe, ESG principles are considered standard practice, while in the US, there is still resistance to adopting them, with opposition growing stronger.
The survey reveals that 42% of North American respondents view the risk of negative returns as a significant challenge, whereas only 20% of Europeans share the same concern. However, insights reveal that it is arguable whether ESG investing leads to lower returns. Investors who commit to ESG principles perform just as well as their peers who do not prioritize ESG factors.
One of the reasons behind the negative perceptions in North America stems from doubts about whether ESG-friendly fund managers are fulfilling their fiduciary responsibility. This concern is highlighted by nearly a quarter of North American respondents but only 7% of European participants. The contrasting perspectives on ESG’s role in fiduciary responsibility further underscore the differences between the regions.
In the US, ESG-informed investing has become politicized, with the term “ESG” being avoided by some. Additionally, several US states have passed laws restricting investments in ESG-focused financial institutions due to political concerns. In contrast, Europeans are more worried about unclear or burdensome regulations. About 29% of European respondents see this as a top challenge, compared to 19% of North American investors. European investors face strict regulations under the EU Sustainable Finance Disclosure Regulation, while the US Securities and Exchange Commission has been considering its own ESG disclosure rules since 2022.
One common challenge faced by all respondents is the lack of clarity in defining and measuring impact outcomes in sustainable investing. Both North American and European investors, at 39%, find this to be a significant obstacle.
While ESG and impact investing gain traction worldwide, the hurdles encountered by North American and European investors differ significantly. European investors grapple with regulatory concerns, while their North American counterparts face challenges related to perceptions of negative returns and political entanglements. Nevertheless, both regions struggle with defining and measuring impact outcomes, indicating the need for clearer standards in sustainable investing across the board.