The jury’s out on whether the carrot or the stick approach works best in pushing sustainability forward, delegates heard at Real Asset Media’s Impact Investing & Implementing ESG briefing, which took place at EXPO REAL in Munich last week.
“The US relies on tax incentives like the Inflation Reduction Act and other incentives at state level, which help with motivation”, said Ryu Konishi, Managing Director, Sustainable Investment, LaSalle Investment Management. “They do induce market participants to do something, but the lack of available data means everyone is trying to figure out what they are supposed to do without a real benchmark”.
The European Union, on the other hand, has clear and strict regulations in place, backed up by sanctions and fines for non-compliance.
“The availability of ready-made approaches in the EU is better than the US, because the rules are clear and there is great transparency”, said Konishi.
Europe also set off earlier on the sustainability path, so that market participants have had time to accept, internalise and incorporate ESG regulations.
“Europe has gone past the why and now we’re into the how and the when”, said Robbie Epsom, EMEA Head of Sustainability & Senior Director, CBRE Investment Management. “The market is using EU Taxonomy as best practice and companies are adopting into their framework Key Performance Indicators that the market understands and that regulators approve”.
Some segments of the market are more reluctant than others.
“The debt side is one step behind the equity guys”, said Kristina Foster, Fund Manager & ESG Leader, Schroders Capital. “We have lenders who want to drive ESG forward, but there are different interpretations and slightly nuanced positions. However, there’s a definite move in the right direction, assome are looking at bespoke impact strategies. We’ve seen a real change in the last six months”.
There is a clear divide between institutional borrowers, who already have a green agenda, and the less institutional borrowers “who need to be pushed to become more sustainable, as there’s often no ESG experience or expertise in the company at all”, said Foster. “We’re all about preserving value, so we aim to bridge the gap between the two ends of the spectrum”.