Since the Paris agreement on climate change back in December 2015 the market for sustainable finance has evolved rapidly. What was once niche and specialist is now mainstream, and green finance is now on many money managers’ agenda across the globe.1
Already there are 1,750 signatories to the UN’s principles on responsible investing in 50 countries, accounting for USD70 trillion in managed assets.2 In a recent HSBC survey, 68 per cent of global investors said they intend to increase their climate-related investments. Meanwhile, one in two companies now has a strategy in place to reduce their environmental impact.3
“Over the last 12 to 18 months we’ve seen a massive increase in the implementation of environmental, social and governance (ESG) criteria into the investment process of big asset managers and insurance companies,” explains Daniel Klier, Group Head of Strategy and Global Head of Sustainable Finance at HSBC.
It is also estimated that USD90 trillion in infrastructure investment will be deployed globally up to 2030.4 This is more than what is currently in place. There are calls for this to be more sustainable if countries are to meet their commitments to COP21.5
“There is big institutional money behind sustainable finance now and the next generation of retail investors wants to have asset classes that are financially attractive, but also responsible,” states Mr Klier at the recent HSBC Sustainable Financing Forum.6
At the same time, the G20’s Financial Stability Board (FSB) has set up a voluntary framework for companies to disclose the financial impact of climate-related risks. This has drawn support from more than 100 companies holding USD11 trillion in assets.7
“The FSB will be requiring financial institutions to report on their exposure to sustainability risk and how they are managing this as part of their financial stability assessment,” says Jonathan Drew, Managing Director, Infrastructure and Real Estate Group at HSBC.
Measuring the impact of sustainable finance is also crucial and is one of the reasons why ratings agencies, such as Standard & Poor’s and Moody’s among others, are developing evaluation tools to quantify green investments.8
China is one country that’s leading the way in terms of sustainable finance, as the Beijing government and the People’s Bank of China have made it a priority in a bid to green the country’s economy and industry.9
“It needs to make this transition and decide how to direct enough resources to this. This is the biggest challenge,” states Leslie Maasdorp, Chief Financial Officer at the New Development Bank.
“There’s a new industrial revolution unfolding, with new sectors such as renewable energy now a multi-billion-dollar industry. There’s also a technological revolution underway, which is still taking shape. I believe that this is going to provide fresh impetus for the green finance market.”
- Big investors to put more money into tackling climate change, Financial Times
- UN Principles for Responsible Investing, United Nations
- Growing investor appetite for green assets puts pressure on companies to explain their climate strategies, HSBC Research
- The Sustainable Infrastructure Imperative, Global Commission on the Economy and Climate
- Commentary: The $90 trillion question, Global Commission on the Economy and Climate
- Investing with 'green' ratings? It's a grey area, Reuters
- Final Report: Recommendations of the Task Force on Climate-related Financial Disclosures (June 2017), Financial Stability Board
- Sellers of green bond face a buyer’s test of their credentials, Financial Times
- Capacity building key to growth of green financing: economist, China Daily