Driving the ESG Agenda: Collaboration between Issuers and Financial Institutions

Key takeaways

• Collaboration between global issuers and financial institutions is helping to drive progress in ESG and sustainability strategies
• Investors and banks have an important role to play in shaping the ESG agenda
• While the focus is often on the “environmental” of ESG, the “S” of social bonds holds opportunity

In early June, HSBC held its second Female Leaders in Finance – Financial Institutions Conference in virtual format across the Asian, European and US time zones. With over 600 registered participants globally, the Event brought together a high-profile range of female executives and leaders across the financials space.

Over the course of 10 panel discussions with 30 senior female speakers, a diverse range of global banks, insurers, asset managers and policymakers discussed themes that are shaping the financial institutions landscape. The Conference again highlighted the important role that female executives are playing in the financial sector as well as the continued need to support and expand diversity in the industry.

Many policymakers, issuers and investors are taking steps right now to positively shape the Environmental, Social, and Governance (ESG) agenda. But what are the challenges they are facing? And what are the main themes the industry is tackling?

HSBC invited experts to discuss key issues around ESG strategies for global issuers and financial institutions.

One of the concerns facing issuers is that ESG can be overwhelming. Some might not have transitioned to ESG, for example, because of lack of the technology needed or problems getting to grips with data.

I think it's a complicated space, I think it's an intimidating space," says Annie Seelaus, CEO of Seelaus & Co. She says that people might be thinking, "I don't want to get this wrong.

“It's a tough time to navigate because I think that the regulatory approach in the US seems to be a bit different than what we're seeing in Europe. And there are a lot of things that aren't clearly defined, I think access to data is tricky, and then which data points are you using?”

What they try to do at Seelaus & Co is take the broad ESG concept and break it down, she says. You're not going to get every piece of it right across your organization if you're a large corporation, she points out.

“Let's focus on what you want to achieve, and the metrics you're going to use to show that you've achieved that. And then what are the weaknesses? And what are the places where you need to improve?”

Investors have an important role to play in the process.

“It is vital that investors and other shareholders clearly communicate to us what they need,” says Kerstin Ahlqvist, Head of Long-Term Funding and Sustainability at Swedbank. “We can then work internally to prioritize. We are interested to hear what the investors are working on, what is on their agenda?”

“It's been very difficult in the last 10 years to figure out the needs,” adds Yasmina Serghini, MD Corporate Finance Group, Moody's Investors Service.

“I think we have ended up with different propositions, different methodologies, different ways of addressing that demand, which is ever-increasing. And it's probably creating a bit of confusion.”

She suggests a time will come when a “tidy-up” will be needed of the products and services available, to be more efficient in addressing the needs of investors.

“It's about providing a better toolkit to the investors in order for them to make the decision.”

Collaborations driving change

“We believe that as a bank, we have a major role to play,” says Ahlqvist. “We have put sustainability at the core of everything we do.” “We believe that our key role in this transition is to support clients in making sustainable choices, both environmental and financial, through services and advice.”

Collaboration is one of the positive outcomes that the experts have noticed as banks and issuers navigate the best way forward in terms of ESG.

As Seelaus says: “What's really fascinating to me about this space, but also energising is that it's one place where we've seen banks, banking teams, issuers, Treasury teams, willing to be incredibly collaborative.”

The neglected S of ESG

Globally, there's still a lot more attention given to the environmental side, points out Anjuli Pandit, Head of Sustainable Bonds at HSBC. For example, there is a lot of collaboration on developing environmental data, and standardization on how to view it.

But what about the social side – the “S” of ESG? Is it being overlooked?

“In a lot of ways, the work that's been done on the climate side could serve as a roadmap,” suggests Seelaus.

From the point in the past where “anything could be a green bond” things have moved to a demand for something much more measurable, she says. “On the social side, there's so much work to be done. It's a great time for all of us to be a part of that conversation and shape it.”

“We have engaged with a number of investors over the last few years and many of them have said to us, social risks really feel like the neglected child of ESG,” says Serghini.

Social is a complex area, encompassing many considerations, Serghini says, for example, product safety, supply chain considerations, business reputation, employer-employee relationships.

“Some sectors are more prone to strikes, and that can create issues from a credit perspective, because of less money, less earnings, less cash flow, further down the line.”

She says they have counted about 20 sectors which present a high or a very high social risk. Some of them are sectors that also present high environmental risks, including metals and mining. This social risk is then reflected in the rating that Moody's assign.

Seelaus says that she is not hearing much chatter around social bonds and agrees with Serghini that it is a complicated space. Being harder to define, as social is, is often viewed by the market as a negative, she says.

She thinks that fear of getting it wrong is causing people to shy away from social bonds.

“I look at it from the other perspective, I think, actually, social bonds are a great opportunity for innovation and creativity,” she says. “I think it's about really narrowing the focus, choosing one thing that you want to have an impact on.”

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