Supermodel II: how appetites for sustainability are changing on both sides of the Atlantic

Galaxy Mayani, Director

Camille Gerard, Associate Director – ESG Risk

Download the Supermodel II report now.

European asset management is firmly back in the spotlight. Drawn by expanding private markets, evolving fund structures and deeper capital opportunities, US institutional investors are increasingly turning to Europe to fuel growth. Yet alongside this renewed momentum sits a new shift: a sharp pullback from sustainable investing.

Carne’s Supermodel II research captures this tension clearly. Some 41% of global asset managers now identify European expansion as a top strategic priority, up from 34% last year, even as commitment to sustainable products among US managers has fallen from 43% to 22%. European firms, by contrast, remain consistent, with 53% maintaining their focus on sustainability.

At a time when Europe’s regulatory and investor landscape continues to place sustainability at its core, the contrast in approach raises important questions about strategy, execution and long-term alignment.

Why Europe continues to command attention

Despite shifting ESG priorities, Europe’s growth story remains compelling. According to Supermodel II, asset managers are concentrating their European strategies around three key areas: private markets, active ETFs and the wealth channel.

Private markets are expanding as bank lending contracts and capital is redirected toward infrastructure and development projects, many of which are sustainability-linked. Active ETFs are attracting growing interest as investors seek more flexible and cost-efficient vehicles. At the same time, regulatory developments such as ELTIF 2.0 and the UK’s LTAF are opening new pathways for long-term investment.

This momentum is reflected in client focus. Some 59% of managers say they are prioritising European institutional investors for sustainable products, compared with 28% prioritising the US or Asian markets.

Europe, in short, remains a strategic growth engine – but success depends on grasping the nuances of how its markets operate.

Where sustainability strategies start to fracture

The retreat from ESG among US managers is driven in part by a more complex domestic environment. Evolving disclosure requirements, particularly around emissions, have increased reporting burdens, while sustainability is afforded differing levels of importance across US regulatory and market frameworks. Concerns around performance in a complex political climate have also influenced decision-making.

More fundamentally, many firms underestimate Europe’s diversity. Treating Europe as a single market ignores the sharp contrasts between countries. The Nordics, for example, embed sustainability deeply in both culture and regulation, including the Swedish Fund Selection Agency’s four sustainability requirements. Germany and the Netherlands are shaped by strict regulatory expectations, while Southern Europe presents a more varied picture. For managers aiming to scale quickly, these differences can add friction to product design, approvals and distribution.

There is also a philosophical divide. European investors increasingly expect ESG to be embedded through active ownership and transition support, not merely reflected in product labels. For firms operating with narrower or more time-constrained ESG frameworks, this can require a significant rethink.

Execution gaps and the cost of underestimating Europe

Turning European opportunity into reality requires operational agility. Product regimes, anti-money laundering (AML) frameworks and supervisory expectations differ materially from those in the US, and many managers lack infrastructure that translates cleanly into European fund structures. The scale and complexity of governance, board composition and due diligence are frequently underestimated.

This has a direct impact on speed. In our survey, only 38% of managers consider themselves ‘highly effective’ at getting products to market, while 63% say it takes at least 10 months from ideation to launch. Delays are often compounded when key decisions are made before the right partners are engaged.

Third-party management companies can play a critical role here, providing regulatory insight, operational capability and local market knowledge. At Carne, funds are typically launched within 90 days, with a target of 45 days as processes continue to evolve.

A pause, not a retreat

The current de-prioritisation of sustainability among US managers is unlikely to be permanent. Inflation, market volatility and post-Covid pressures have sharpened focus on cost control and short-term performance, while firms continue to assess how EU frameworks – particularly the more demanding elements of SFDR – affect product economics.

Europe’s direction, however, remains steady. While sustainability priorities vary by country, the broader trajectory has not changed. Investor demand remains resilient, even as fee pressures and operational complexities increase.

For firms seeking durable growth in Europe, sustainability cannot be treated as optional. The managers best positioned for success will be those that understand regional nuances, invest in the right operating models, and approach sustainability as a long-term strategic commitment rather than a cyclical trend.

For more, download our Supermodel II report.