A German state refuses to buy Treasurys because the US doesn't meet its ESG standards

• The German state of Baden-Württemberg is excluding US Treasurys from its holdings, Bloomberg reported.

• That's because the US government falls short of the state's new ESG standards.

• Baden-Württemberg has about $18 billion in holdings, and its impact on the Treasury market is seen as minimal.

Baden-Württemberg is excluding Treasurys from its holdings because the US government falls short of the German state's new sustainable-investing criteria, according to Bloomberg.

The state adopted a law earlier this year that put environmental, social, and governance considerations at the same level as profitability and liquidity when allocating its roughly $18 billion in holdings, the report said.

Investment decisions must now be based on the UN Sustainable Development Goals, the EU's Taxonomy Regulation, and the Paris Agreement on climate change.

Other countries now on the wrong side of Baden-Württemberg's rules include Finland, Latvia, and Greece. In the case of the US, it ran afoul of guidelines because it hasn't ratified several treaties such as those involving women's rights and certain kinds of weapons, Bloomberg said.

For its part, the US was ranked 38th in the world in the 2022 SDG Gender Index, which tracks the empowerment of women and girls.

Meanwhile, the US hasn't ratified the Treaty on the Prohibition of Nuclear Weapons. And then-President Donald Trump said in 2019 that the US had "unsigned" the Arms Trade Treaty.

Trump also withdrew the US from the Paris climate agreement, but the US rejoined it when President Joe Biden took office.

Arnim Emrich, the head of Baden-Württemberg's treasury and asset management unit, acknowledged to Bloomberg that banning certain investments based on international treaties is "kind of a blunt approach."

"But it's the only proxy we have that is simple and objective," Emrich added.

Baden-Württemberg isn't the first German state to adopt similar ESG laws. Schleswig-Holstein already has a law that bans US Treasurys.

But Germany is unlikely to have much impact on the US bond market. Overall German holdings of Treasurys total $85 billion compared to the $24 trillion Treasury market.

Read the original article on Business Insider