While one in every three
dollars in the US is managed
following sustainable
investment strategies, and
the nation is the world’s
largest country issuer of
green bonds, there remain
significant opportunities for
growth. Early signs indicate
the Biden administration
could provide a ‘turbo boost’.
When it comes to climate change,
the intentions of President Biden’s
administration could hardly be clearer:
within hours of assuming power he had
announced that the US would rejoin
the Paris agreement.1 Since then the
US has announced targets in line with
Article 4 of the Paris Agreement to cut
emissions to 50%-52% below 2005
levels by 2030 and to achieve carbon
neutrality by 2050.2
There has been similar positive
impetus in responsible investment (RI).
Biden’s choice as head of the National
Economic Council, Brian Deese, is an
expert in sustainable investing. Further,
Biden has created the position of
climate tsar on the National Security
Council. Most crucially, he has also
begun to roll back key regulations
introduced in the Trump era which were
designed to discourage investments
based on environmental, social and
governance (ESG) criteria.
Earlier this year the Department of
Labor announced it would not enforce
a requirement for plan sponsors
such as 401(k) providers to take and
document certain steps to confirm
that they were not sacrificing financial
returns when devoting money to
environment, social and governance
-focused investments.3 Separately,
having voted in 2020 against requiring
certain disclosures relating to ESG, the
Securities and Exchange Commission
(SEC) is now preparing a framework of
rules to govern ESG reporting.4
Despite a pushback against
ESG investing under the Trump
administration, the sector is well-poised. At the start of 2020, total
US domiciled assets under
management following sustainable
investment strategies5 had grown to
$17.1 trillion, up from $12 trillion at
the start of 2018 and representing a
third of all assets under professional
management.6
Institutional investors make up a
large proportion of this, accounting
for $6.2 trillion at the end of last year,
with public pension funds representing
more than half that total.7
Sustainable funds in the US also
continue to attract record inflows.
In 2020, flows into US open-ended
and exchange-traded sustainable
funds hit $51.1 billion, more than
double the year before and almost
10 times the level of 2018, both of
which were record years.8 According
to research from Morningstar,
investments into sustainable funds
represented 24% of total flows into
US stock and bond funds in 2020.
The Covid-19 pandemic, combined
with the 2020 election result and
growing concerns over climate change,
are likely to support continued strong
investment flows into sustainable funds.
When it comes to green finance,
the US also boasts a vibrant market.
In green bonds, it tops global
rankings with $51.1 billion of issues
in 2020, according to Climate Bonds
Initiative.9 However, Germany and
France, in second and third place
with $40.2 billion and $32.1 billion
of issuance respectively,10 have more
developed green bond markets
relative to the size of their economies,
in part because both countries have
launched benchmark-setting
sovereign green bonds.
To date, there has been a reluctance by
the US Treasury to follow suit. But, given
Biden’s commitment to tackling climate
On RI investing the US is once again
the land of opportunity change, analysts are closely watching
whether the current US government
will soon commit to launching a green
bond, a move which would add further
impetus to the market.
Even so, counting all cumulative
debt issued, the US remains the
world’s largest single country issuer
of green, social and sustainability
(GSS) bonds, buoyed by multiple
repeat issues of green and social
bonds by Fannie Mae, a large guarantor
of mortgages. In fact, Fannie Mae is
the largest green issuer in the US: by
the end of Q1 2021 it had launched
4,200 deals totalling $94 billion.11
Green bonds have a significant role
to play in transitioning the US to a
greener economy. Globally, energy was
the most popular use of proceeds
of green bonds in 2020, followed by
low carbon buildings and low carbon
transport. The US is little different.
Since the inception of the US market,
buildings have been the leading use of
proceeds of green bonds followed by
renewable energy.
Despite this, the US economy remains
heavily reliant on fossil fuels. Last year
the country was the largest oil and
natural gas producer globally, and in
2019 82% of primary energy production
in the US came from fossil fuels –
down from just 86% in 1990.12
But the Biden administration has
set ambitious targets for change.
Currently, almost two thirds of
electricity generation comes from
fossil fuels. Under the US
decarbonisation policy, Biden has
set a goal to reach 100% net neutral
electricity by 2035. This should help
underpin further strong growth in
US green bonds.
There is certainly massive growth
potential. Despite its size, GSS debt
represents only a tiny proportion of
debt markets and, in the US, just
0.6% of the $46 trillion US bond
markets.13
To date, the largest green bond
from a non-financial corporate is the
$1.5 billion issue by Apple in 2016,
the proceeds of which were used for
renewable energy and energy and
water efficiency projects. Indeed,
companies like Apple, Microsoft,
Berkshire Hathaway and Visa are
viewed as leaders in sustainability,
helping propel the US to 13th place
in a global ranking of 48 countries,
according to the latest Morningstar
Sustainability Index.14 However, Europe
continues to lead this index with the
Netherlands, France and Finland the
top three countries in the world when
it comes to corporate-level
sustainability.
It is clear the European Union (EU)
has progressed further than the
US when it comes to sustainable
investing. This has been partly through
the European Green Deal which is
aiming for European climate neutrality
by 2050, and EU Taxonomy rules which
require financial services firms to
disclose how products fare in terms
of environmental sustainability.
Despite a strong global position in
green bonds and sustainable investing,
it is time for the US to play catch up.
From roll backs of anti-ESG rules to
the US government’s $2 trillion climate
plan, the early signs from the Biden
administration for both green finance
and responsible investment are positive.
