Research commissioned by HSBC shows that 61 per cent of investors and 48 per cent of issuers around the world have an Environment, Social and Governance (ESG) strategy in place – yet wide geographical differences exist.
Among issuers, Europe (87 per cent) and the UK (87 per cent) set the pace, particularly among corporates with over USD10 billion turnover. Hong Kong registers 13 per cent, followed by the US at 21 per cent. For investors, the widest disparity exists between Europe (85 per cent) and Asia (40 per cent).
Discussion with 1,731 companies and institutional investors reveals that financial returns and tax incentives are the top two ESG decision drivers across all issuers and the majority of investors. Pension funds and sovereign wealth investors (SWFs) state regulation as their number two driver, behind financial returns. Clear geographical differences again exist. Companies with USD10 billion in turnover in China and Hong Kong list supply chain initiatives as their number two driver for ESG financing. In Europe, the UK and Canada, company policy, strategy, ESG goals and stakeholder pressure top the list.
Daniel Klier, HSBC’s Group Head of Strategy and Global Head of Sustainable Finance, says: “It’s notable that the driver of increased disclosure has changed since 2017, when 83 per cent of corporate issuers cited investor pressure first, followed by regulation then risk of negative publicity. This shift towards prioritising financial returns illustrates investor engagement has improved and that market forces are encouraging behavioural change. Put simply, ESG, climate finance and risk management are moving mainstream.”
Companies are consistent in their use of proceeds raised, with 66 per cent citing internal investments to make their business greener such as new plant and machinery, or new renewable power sources. One outlier is China, with almost 9 per cent stating green M&A.
Encouragingly, 67 per cent of issuers and 57 per cent of investors see no barriers to increasing their ESG commitments. Fewer than 10 per cent of investors currently have dedicated ESG investment funds, but they expect these will grow 22 per cent over the next year. Of those who do see barriers, 58 per cent cite inconsistency of ESG definitions as the inhibitor. This is the number one barrier for issuers globally and the highest for investors across Europe and the UK. Investors also cite lack of investment opportunities, exacerbated by low data quality.
While international regulation is cited as the number one reason to increase disclosure levels globally, only 8 per cent of issuers and 10 per cent of investors are aware of the TCFD’s existence. The TCFD is the task force that has worked to develop a set of clear and consistent global recommendations for corporate disclosure around climate risk. For issuers specifically, only the UK (20 per cent) and Canada (11 per cent) have double digit levels of awareness. This is led largely by companies with USD10 billion turnover.
Klier adds: “The market is now looking to regulation to provide clarity and definition, especially as inconsistency of definitions is an issue for all. With the providers of capital looking for enhanced disclosure, and TCFD providing a framework for doing so, implementing the recommendations is now a pressing global priority.”
