US sustainable assets fall as SEC pushes ESG regulation

December 22, 2022

Sustainability-linked assets in the US have fallen from a high of $17.1tn in 2019 to $8.4tn at the beginning of 2022, a report from the US Forum for Sustainable and Responsible Investment (US SIF) has found.

In total, 13% of the total US assets under professional management are sustainability linked, down from 33% in 2019.

Elsewhere, 154 institutional investors and 70 money managers controlling $3.0 trillion in assets under management led or co-led shareholder resolutions on ESG issues from 2020 through the first half of 2022.

The report also notes a growing focus on the inclusion of climate change and workplace issues in sustainable investing, alongside a maturing data landscape.

“Money managers and institutional investors are using ESG criteria and shareholder engagement to address a plethora of issues, including climate change, conflict risk and anti-corruption as well as workplaceand equal employment opportunity, corporate political activity and human rights,” said Lisa Woll, US SIF Foundation CEO.

 “With new issues such as biodiversity being added to the Trends Report survey, we are confident that there will be continued growth in the ESG issues that investors will consider in the future,” she said.

The US SIF Foundation said recent regulatory moves by the SEC underpinned this year’s findings.

Two proposals, one to prevent misleading fund names and another to require greater transparency around funds' consideration of ESG factors, were key drivers in the decline in sustainable assets, the US SIF said.

Multiple money managers reported a decline in ESG assets under management, which the US SIF Foundation believes is a reaction to the SEC's release of the fund disclosure proposal.

The regulatory changes come on the back of growing greenwashing concerns among US-based investors and regulators, with the SEC moving to more heavily enforce anti-greenwashing policies.

The introduction of ESG regulations elsewhere has previously resulted in a sharp drop in ESG assets.

In Europe, the introduction of SFDR regulation lead to at least $125 billion being downgraded on the back of more stringent naming requirements, while in Canada, portfolios classed as responsible investments dropped from $3.2trn in December 2019 to $3trn at the end of 2021.

Meanwhile, the leading ESG issue raised in shareholder proposals was on ensuring fair workplace practices, particularly on ending de facto discrimination based on ethnicity and sex. Close behind in the number of proposals filed were concerns about corporate political activity and climate change.

For the first time, institutional investors reported climate change as the leading ESG criterion they addressed in asset-weighted terms.