The revolution in how companies and institutional investors see their role and responsibility on social and environmental issues has continued to gain strength and momentum in the past year. Indeed, if the pandemic helped provoke a reassessment of the relationship the capital markets have with society, its participants are now actively redefining this relationship with sustainability increasingly at the core. Such profound change is evidenced in HSBC’s fifth annual global survey of 2,000 capital markets issuers and institutional investors, conducted during May and June.
The Sustainable Finance and Investment Survey for 2021 shows that in addition to values underpinning why companies and investors care about these issues – 89 per cent of issuers and investors say they are important – the financial benefits of doing so are now recognised more widely than before. In fact, 51 per cent believe that paying attention to these issues can help improve returns or reduce risk, which is the highest percentage in three years. The results also highlight the larger the size of company or investor (by annual revenues or assets under management), the greater the importance of environmental and social issues. Some 70 per cent of issuers with revenues greater than USD10 billion or investors managing over USD25 billion see these issues as very important – significantly higher than the global average of 44 per cent. What’s more, about two thirds of all issuers (64 per cent) say they expect to actively seek advice on green, social or sustainability issues in relation to capital markets transactions in the next 12 months, indicating strong intent and interest in green and sustainable finance globally. And for investors, some 59 per cent of them say they now have a firm-wide policy in place on responsible investing or environmental, social and governance issues – up from 51 per cent last year.
The impact of the pandemic has been a primary driver of participants’ increased focus and attention on these issues – 74 per cent of respondents say so. But also important (more than 60 per cent agree) has been the pressure on their company from society to pay more attention to these issues, and a recognition among respondents that their responsibility to society has in fact changed. Such a response supports a palpable sense in the market that real, generational change is underway in how capital markets participants see their role and responsibility in supporting society and the transition to a more sustainable world. This also aligns with moves in some economic regions, such as the EU, to encourage companies and investors to not only consider how environmental and social issues can affect their investments, but also how their investments affect the environment and society. The emphasis on so-called ‘double materiality’ to bring about a deeper consideration of the impact investments can have, is important. Some 46 per cent of investors surveyed this year say they use impact goals or metrics as part of their investment decision-making – up notably from 37 per cent of investors who said the same in 2020.
Ultimately, investors and companies are thinking more deeply about the impact they and their investments can have because they believe it is right to care about the world and society. This is the main reason why respondents say they care about environmental and social issues, together with the financial benefits, an evolving regulatory regime requiring issuers and investors to act and report, and rising demand for change among customers and employees. For all the advances, though, challenges inevitably remain. Some even grow. While two thirds of investors this year (63 per cent) see nothing holding them back from pursuing ESG investing more fully and broadly – a significant improvement from previous years – for those that see issues, a shortage of expertise or qualified staff is their biggest problem. The ESG skills gap is a cross-industry issue, but one perhaps most acute in the finance and investment industry given such high levels of demand.
Another problem area is the practice of ‘greenwashing,’ which involves companies intentionally making false claims about their green or sustainable credentials. While such activity is unfortunately inevitable in a booming market, it is threatening to become a real problem, investors warn. Indeed, some 39 per cent of the largest investors (including pension and sovereign wealth funds with assets under management greater than USD25 billion) we surveyed say they are very worried about greenwashing in all its various forms.