Eric Deram, Flexstone
Eric Deram, Flexstone

Temperature-check on LP appetite for sustainability: the transatlantic divide persists. Investors in Europe still show more interest in ESG and impact investing than those in North America, investment consultant Flexstone Partners and placement agent Rede Partners both report.

For Flexstone’s European pension fund and insurance company clients, “there is clearly a demand to find either impact funds or [SFDR] Article 9 funds… for climate change”, said managing partner Eric Deram over a lunch hosted by Flexstone’s parent company Natixis Investment Managers in New York last week. “Or they want to have a layer of ESG due diligence and impact across all the asset classes, including private assets. Sustainability and specifically decarbonisation is very important. It’s even a requirement for a lot of them.”

This is much less often the case for US and Asian institutional investors, Deram added.

Rede’s Private Markets Sustainability and Impact Report, for which the placement agent surveyed 160 institutional investors, shows similar findings. Forty-two percent of European investors planned to increase allocations to sustainable/impact themes, while just 10 percent of North American investors planned to do so. “We are seeing a divergence between North American and European LP behaviour and sentiment toward impact investments,” Rede states in the report, published in March.

This transatlantic divide has persisted for years at the 40,000-foot level. But North America is also home to some of the world’s largest public pension funds with dedicated pools of capital for impact and climate investing: CalPERS, CalSTRS, CPP Investments, CDPQ, PSP Investments (see our Data Snapshot here). Several of these allocations were created or topped up in the past year – so NPM may soon be reporting that this transatlantic divide is narrowing.