A sustainable global economy starts with individual acts of conscience and responsible corporate citizenship. But taking on the climate and social issues that continue to affect people all over the world requires more. To drive fundamental change, individual action must evolve into institutional transformation – where Environmental, Social and Governance (ESG) becomes not simply a moral imperative, but a business imperative as well.
We’ve been seeing this transformation over the past five years, as investors and issuers have increased their focus on ESG criteria. In its last report, the Global Sustainable Investment Association (GSIA) said that global assets under management incorporating ESG had risen 25 per cent over the previous two years. They also estimated that 30 per cent of investable assets globally – or over USD20 trillion – included sustainability in their investment analysis 2016 Global Sustainable Investment Review.
The bottom line is, attitudes are changing quickly. That’s why we’ve once again commissioned East & Partners, a leading banking research firm, to help us gain a better understanding of what investors and issuers are doing today and what they’re planning for the future as it relates to sustainable investing.
What we’ve learned this year is that more than 60 per cent of investors and nearly 50 per cent of issuers around the world have an ESG strategy in place.
Also, while fewer than 10 per cent of investors currently have ringfenced or dedicated ESG investment structures, they anticipate this will grow by 20 per cent over the course of the next 12 months.
Decisions about ESG investing and financing are increasingly financially driven. 74 per cent of investors cite financial returns a key factor in their decisions about ESG while two thirds of issuers consider tax incentives important. This along with shareholder and stakeholder pressure, which still ranks high in the decision-making process, indicates that the ESG market is maturing and sustainable.
Most investors and issuers say they see no barriers to increasing their ESG investing and financing commitments. In some markets, however, there’s a disparity between investor and issuer perceptions of potential obstacles. In these cases, investors name a lack of opportunity as the main reason they are not increasing their ESG investments, while issuers say they are not increasing ESG financing because of low investor demand. Other barriers mentioned include inconsistent ESG definitions and time-consuming disclosure requirements.
In the pages that follow, you’ll find a deeper analysis of the results from our interviews with more than 1,700 investors and issuers around the world. This includes how actions and viewpoints differ by sector, region and country – such as how nearly 93 per cent of UK issuers report being involved in ESG financing while just under 60 per cent in Hong Kong say they are.
As the market continues to shift, we believe incorporating ESG factors will become the norm and impact the choices people make about who they do business with and how they invest. That’s why HSBC continues to work toward sustainability across all our global businesses and solutions. To learn more about how we can help you build and strengthen your ESG strategy, please contact your Relationship Manager.
A few of the key highlights include:
- Generally, issuers are allocating funds first for green business projects followed by green impact investments. In North America, however, there’s a heavier emphasis on ESG principled pension funds.
- There is consistency in investment styles being used globally with the top three being integrating ESG factors, negative or exclusionary screening and sustainability-themed investing.
- For investors and issuers, being involved in the ESG market has a lot to do with reputation and most say this has improved because of their ESG commitments.
- Even though reputation is a key driver, the level of disclosure about ESG policies varies from region to region. Globally, the majority of investors and issuers are not disclosing their policies – indicating there is still a long way to go where transparency in the industry is concerned.
About the report
HSBC has commissioned East & Partners (East) to continue its Sustainable Finance research programme into a third year. The main research objective is to further explore the underlying approach to the sustainable financing and ESG markets across the investor and issuer base in each geography, the importance of disclosure to them, how that has changed, and what the future holds.
The first round of research in 2016 reported on sustainable financing with particular focus on environmental, which was expanded to cover social investing in the next round in 2017. Round III in 2018 has broadened this further to encompass all three ESG factors (environmental, social and governance) pivotal to sustainable and responsible investing.
The reporting is based on direct interviews conducted by East with 1,731 global entities including 863 issuers and 868 investors over a five week period ending 29 June 2018. Among corporate issuers, the average company size was USD23.8 billion, with 54 per cent of issuers with annual turnover under USD10 billion and 46 per cent with turnover in excess of USD10 billion. Among investors, the average assets under management (AUM) were USD178.8 billion, with 43 per cent of investors with AUM under USD100 billion and 57 per cent with AUM in excess of USD100 billion. Group Treasurers, CFOs, CIOs and heads of investments strategy included in the sample frame were located across Europe, North America, Asia and the Middle East.
Sustainable Financing and ESG Investing Report Infographic
HSBC Global ESG Financing Awareness of the Taskforce for Climate-related Financial Disclosures Issuer & Investor Market Insights September 2018
Surveying corporate issuer and investor attitudes to sustainable finance September 2017
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