Ignites Europe featured new research from Scientific Portfolio an EDHEC Venture, showing that actively managed European equity funds exhibit higher carbon intensity than their US counterparts, even though European strategies are theoretically more compatible with Paris-aligned benchmark exclusions.

The study compared European and US equity strategies and their alignment with investors’ ESG objectives, amid what it calls a “growing transatlantic polarisation of attitudes and practices” on sustainable investing.

“Our empirical results show that Growth strategies are generally more in line with climate objectives than their Value counterparts: this is true both in Europe and in the U.S., and whether one uses a PAB lens or simply carbon intensities.”
— Shahyar Safaee, Deputy CEO and Business Development Director, Scientific Portfolio

To compare active funds across regions, the analysis assessed how many stocks would need to be removed from portfolios to eliminate exposure to companies excluded under the EU Paris-aligned Benchmark (PAB) criteria, while also measuring their carbon footprints.

The study covered 353 large-cap US equity funds and 146 large-cap European peers, each managing at least $100 million in assets, with a minimum three-year track record and an adjusted expense ratio greater than 50 basis points — the cost filter serving “as a proxy for genuine active management.

Scientific Portfolio found that the median active European equity fund would need to exclude 7% of its holdings to comply with a PAB screen, compared with over 15% for US funds. European equity funds were also found to be “theoretically more compatible with a PAB screen” across both growth and value sub-categories.

• The median European growth fund would exclude 2.3% of stocks, versus 10.7% for US rivals.
• The median European value fund would exclude 11.3% of equities, compared with 18.5% for US peers.

However, the analysis also revealed that the median European large-cap active equity manager had a higher carbon footprint than its US counterpart. According to the paper, the higher median carbon footprint for European equity funds was also observed across both growth and value categories.

Scientific Portfolio noted that the polarisation of the ESG debate between Europe and the US “raises difficult questions” for globally diversified ESG investors — but also for those unwilling or unable to adopt ESG strategies.

“Where the ESG debate in the US has become more politically contentious, European investors remain more committed to the principles of managing both the risks and opportunities, supported by regulatory and industry dynamics,” the paper stated.

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👉 Carbon intensity higher for active European funds than US peers: study