Sustainable Financing and Investing Survey 2021 – A new urgency for collective change

For the last five years, HSBC has commissioned a survey of 2,000 market participants to better understand how sustainability is viewed and how it impacts on the decisions of issuers and investors.

The survey is run across 19 industries and 34 territories in the Americas, Europe, Middle East, Asia-Pacific, and ASEAN, and it charts how market sentiment and attitudes have evolved in this critical space in the last 12 months. To better understand the results, we convened a panel of ESG experts to give their feedback on 2021’s insights.

In last year’s HSBC Sustainable Financing and Investing Survey, the effects of the pandemic were clear, strengthening commitment to consideration of environmental, social and governance (ESG) issues for investors and issuers. What was notable this year was how that effect has been sustained. A huge 84% of investors and 93% of issuers say they’ve increased the attention they pay to environmental and social issues in the past 12 months. And when asked about the forces driving this change, more than 75% of them say it’s the pandemic, followed by becoming more aware of the climate crisis. They also talk about greater recognition of environmental problems and a sense that corporate responsibility towards society has changed.

“While COVID-19 has been a really difficult, global phenomenon and crisis, it's actually galvanized change,” says Alex Lupis, Global Head of Global Investor Access and Global Co-Head of ESG Sales for HSBC. “We're seeing a change, a collective change. And it seems like the pandemic has actually just driven everyone a bit closer together and driven a sense of urgency. But it's not just about doing the right thing...people see opportunity here.”

The most important reason for investors and issuers is that it’s right to care about the world and society. But nearly 60% of both issuers and investors say that paying attention to these issues can also help improve returns or reduce risk. That viewpoint has been clear in investors for a while now, but this was the first year it increased sharply among issuers.

There has been a huge rise in commitments targeting net-zero carbon emissions, by governments from the US to China, and large corporations too. About a sixth of investors and issuers in this year’s survey were making these commitments too, but what was significant were how many more were planning to do so – 32% of investors and 62% of issuers.

“There’s a recognition now that climate change – which many previously might have said, ‘Well, that's way off in the future’ – is now seen very much as a current event actually impacting on companies,” says Jonathan Drew, Head of ESG Strategic Solutions Group.

However, despite this new focus, there are still challenges for both investors and issuers. Nearly 80% of companies say they need advice and information from others on how to formulate their strategies for climate change and sustainability and how to carry them out – and over a third need a lot of advice. These figures have increased from 2020, and while some of that requirement might be for nonfinancial advice, around 72% of issuers want financial and investment support to meet their sustainability goals. Within that, 42% say they want a lot of advice, sharply up from 2020.

In every region, more than half of issuers say they expect to actively seek advice on green, social or sustainability factors in relation to capital markets issues in the next 12 months. And that rises to over 60% in Europe and the Middle East, and more than 70% in Asia.

“Part of the issue is that the breadth of issues that have to be analyzed in order to determine whether or not something is a sustainable investment does require expertise, but that expertise potentially isn't usually accessible within finance,” says Farnam Bidgoli, Head of ESG Solutions EMEA at HSBC. “[And] on the regulatory side, especially here in Europe, just the plethora of things that are happening are difficult to keep up with.”

While companies can seek advice from partners outside the business, they’re also looking to recruit sustainability expertise into the business, and that’s creating a skills gap.

“You only have to look on LinkedIn to see the hundreds and thousands of people now who have sustainability in their job titles, which simply didn't exist before. And you know, it's a tremendous thing that the employment market has managed to find these people and train them. But the demand is going to outstrip supply for a very long time to come, I think,” says John Hay, Corporate Finance and Sustainability Editor at Global Capital (formerly Euro Money).

The other main challenge lies in disclosure. Only about a quarter of investors think company’s disclosure is excellent already. Around 40% say it's adequate and about a third say it's inadequate, so there's a clear opportunity for companies that can improve their disclosure. Part of this improvement may come externally, from growing global standards and regulations.

There has been an enormous increase in regulation in the area of sustainable finance, starting first in China, and now very strongly in the EU. Most large economies are developing their own taxonomies of what they consider green and what kind of disclosures companies should be making to investors about their environmental and social performance, and how investors should, in turn, disclose to their clients and the public about what they're doing to invest sustainably.

HSBC has been collaborating with the internet National Finance Corporation and other organizations on a global labelling system for sustainable infrastructure investments that would make investors more confident about investing in them. It’s clear from the survey that market participants would welcome an innovation like this. Only about 8% of investors say they are confident about investing in sustainable infrastructure. Almost 80% say a global labelling scheme would make them either much more confident, or a little more confident.

Despite the challenges around regulation, disclosure and staffing, no companies are holding back. Even the smallest firms and investors are paying attention to these issues today. About 63% of companies say they will change their businesses substantially or to a noticeable extent in the next five years. But remarkably, nearly 45% will do so even in the next two years and virtually all companies expect to make at least slight changes. Quite a lot of this change will also be positive for businesses, with around 70% considering increasing some activities, or starting new ones, that could benefit from the economic changes brought about by climate change.

“It's rather like a race, and everybody has taken their tracksuits off and is now ready at the start of the track. They know the direction, they can see ahead to the to the endpoint. Most people really haven't started running yet – after all, the economy is largely the same as it's been in the past – but the action is really going to begin now,” says Hay.

It’s clear that both investors and issuers view ESG as a newly permanent factor in their decision-making. The pandemic provoked an examination of the role for companies and investors in society, and the effects of this self-examination are proving resilient. Market participants recognize that they have a powerful role to play in sustainability and they also see the financial benefits of doing so. This combination of collective will and potential benefit has cemented the ESG revolution. Now we are likely to see the impact of this revolution gain speed and force.