State Street Global Advisors is encountering tough challenges as its European clients reconsider their ties due to climate risk concerns.
In recent times, US asset managers have found themselves caught in a delicate balancing act. The pressure to adapt to domestic political landscapes has, inadvertently, put them at odds with some European clients who prioritize sustainability. State Street Global Advisors, a key player in the industry, has already experienced a backlash, losing mandates in both the UK and Scandinavia. Among those reconsidering their ties with US managers is PME, a prominent Netherlands-based institutional investor.
The crux of the issue stems from a growing trend among US asset managers to deprioritize climate considerations, a move that many European investors find alarming. European stakeholders, like AkademikerPension, emphasize the importance of aligning investment strategies with sustainable values. Anders Schelde, the chief investment officer of AkademikerPension, highlighted this concern, revealing a decision to withdraw a significant mandate from State Street. “Asset managers don’t need to think exactly as we do,” Schelde notes, acknowledging the complexity of investment strategies. However, he insists on a fundamental alignment of values to maintain partnerships.
This shift in European sentiment is not isolated. State Street, alongside other major firms like BlackRock, has faced scrutiny over its changing stance on climate issues. Critics point out that these firms have distanced themselves from Climate Action 100+, the world’s largest investor group focused on combating global warming. This retreat has prompted European investors, such as PME, to reassess their partnerships because of perceived discrepancies in commitment.
In response to these developments, some European investors are choosing to manage more of their portfolios internally. AkademikerPension, for example, is revising its external manager roster, placing greater emphasis on in-house management as they downgrade State Street. This marks a significant shift as European investors grow wary of US asset managers’ evolving priorities.
Meanwhile, the political climate in the US continues to complicate matters. The Trump administration’s stance on climate finance, perceived as hostile, has compelled many asset managers to soften their climate commitments. This trend is worrisome to European investors who still view climate risk as crucial to investment decision-making.
The differences in approach extend beyond Europe. Some US states with strong GOP influence prefer managers who do not prioritize environmental, social, and governance (ESG) criteria. This divergence presents another challenge for US managers, who risk alienating either domestic or international clients depending on their stance.
The situation underscores a broader dilemma: the growing demand for responsible investing is now a critical factor that asset managers can no longer ignore. If they fail to address these expectations, they might face further losses, not just in Europe, but globally, as other regions begin to adopt stricter sustainability guidelines.
As asset managers navigate these challenging waters, it becomes clear that alignment on sustainability issues is increasingly vital to maintain global partnerships. Without addressing these growing concerns, firms like State Street might find themselves isolated from key international markets.
