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There are $1.83 trillion of European assets in sustainable investment funds, per Morningstar. In the U.S., by contrast, the number is just $300 billion.
Why it matters: There's no sign of the United States catching up in the foreseeable future. Total inflows into European sustainable funds were $112 billion in Q2, compared to less than $18 billion in America.
How it works: The history of European sustainable fund mandates is decades old, especially in the Nordic countries and the Netherlands. Professionals at large institutional investors like pension plans and insurance companies consider ESG mandates to simply be a necessary part of any responsible long-term investment shop.
- European regulators are also pushing hard for further disclosure and regulatory mandates, both at the EU level and at the country level.
- European banks like UBS have announced that sustainable funds will be the default option for private-wealth clients.
The big picture: Broadly speaking, the slowest part of the investment world to move into sustainable investing has been retail investors. The U.S. investment universe is much more based in retail, which helps (in part) explain why America is so far behind Europe.
- Under new European rules, financial advisers will have to ask clients what their sustainability preferences are. That's likely to drive increased retail participation in both active and passive sustainable funds.
- So far, no such mandates seem likely in America.
The bottom line: The investments are always greener on the other side of the pond.
