Trepp: Europe Leads U.S. in ESG Adoption

Environmental, Social and Governance criteria are now incorporated into corporate strategies worldwide. But the United States is falling behind Europe in the investment of ESG commercial mortgage-backed securities deals, said Trepp, New York.

In its report, ESG in the US vs Europe: The United States Falls Behind the Curve?, Trepp attributed Europe’s lead in ESG adoption to a lack of standardization in reporting across each asset class in the United States.

“Europe is currently leading the way globally in a push to incorporate ESG regulations into business decisions, specifically in the commercial real estate market, much in part to a well-established ESG regulatory framework,” said Jack LaForge, Research Analyst with Trepp. “The EU Sustainable Finance Disclosure Regulation is a set of EU rules designed to make the sustainability profile of funds more comparable and better understood by end-investors. The SFDR and other regulations are also aligned with the European Green Deal, which aims to see the EU carbon neutral by 2050.”

The report highlighted one recent European ESG-related deal: the River Green Finance deal. A Goldman Sachs affiliate marketed the first European green commercial mortgage-backed securities transaction, structured around a €196.2 million loan on a suburban Paris office property. The Single-Asset Single-Borrower deal adheres to the environmental aspect of ESG, Trepp said.

“As investors in the CMBS market continue to incorporate all aspects of ESG into their metrics, the European market seems to be ahead of the U.S.,” LaForge said. “While each of the E, S and G criteria are important, the “E” appears to be the priority, with market participants noting the environmental impacts of a property. This is then closely followed by the “S,” or social impact of the properties on the surrounding communities and finally the “G,” or governance of borrowers and landlords.”