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For an illustration of how wildly different the debate around ESG is in Europe and the US, look no further than the German state of Baden-Württemberg.
One of the richest regions in Europe’s biggest economy, and the home of Mercedes-Benz Group AG as well as Robert Bosch GmbH, adopted a law this year that puts investing sustainably on par with more traditional criteria such as profitability and liquidity. It’s a decision that may affect as much as a fifth of the state’s €17 billion (US$18 billion) of holdings, as it pivots away from ESG laggards.
Few outside Germany paid much attention to the law when it was passed. But it turns out the legislation has international ramifications.
That’s because the new environmental, social and good governance filters have resulted in US Treasuries ending up on an investing blacklist, due to America’s failure to ratify a number of treaties in areas including women’s rights and controversial weapons. Other nations to be singled out by the policy include Finland, Latvia and Greece.
The bulk of Baden-Württemberg’s exclusions impact its equity and corporate bond portfolios. The law establishes the United Nations Sustainable Development Goals, the European Union’s Taxonomy Regulation and the Paris Agreement on climate change as the basis for future investment decisions.
The practical investment implications of the law are limited when it comes to US Treasuries, because the German state’s holdings weren’t significant to start with. In fact, German holdings of US Treasuries overall account for a tiny fraction of the market, or just US$85 billion of the US$24 trillion in outstanding debt, according to the latest data.
And there’s little to indicate that investors’ ESG considerations in general have left any kind of dent on the US Treasury market. — Bloomberg.
Online Reporter