Sustainable Financing and ESG Investing report
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.
Group Head of Strategy and Global Head of Sustainable Finance
We’ve been seeing this transformation over the past five years, as investors and issuers have increased their focus on ESG criteria. In its latest report, the Global Sustainable Investment Association (GSIA) said that global assets under management incorporating ESG had risen 25% over the previous two years. They also estimated that 30% of investable assets globally – or over $20 trillion – included sustainability in their investment analysis according to their 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% of investors and nearly 50% of issuers around the world have an ESG strategy in place.
Also, while fewer than 10% of investors currently have ringfenced or dedicated ESG investment structures, they anticipate this will grow by 20% over the course of the next 12 months.
Decisions about ESG investing and financing are increasingly financially driven. Seventy-four per cent of investors cite financial returns as 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 – for example, nearly 93% of UK issuers report being involved in ESG financing while just under 60% 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 June 29, 2018. Among corporate issuers, the average company size was $23.8 billion, with 54% of issuers with annual turnover under $10 billion and 46% with turnover in excess of $10 billion. Among investors, the average assets under management (AUM) were $178.8 billion, with 43% of investors with AUM under $100 billion and 57% with AUM in excess of $100 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.
To view or download a copy of the report, visit here.