Investors acknowledge link between ESG and returns

Demand for ethical products counterbalanced by investor concerns about lack of standardised ESG definitions


Almost half of all investors globally recognise sustainable investing metrics as a driver of long-term financial returns, according to a survey by HSBC.

The bank’s research, ESG Moves Mainstream, found that 48% of investors now cite financial returns as the top driver of their ESG decision-making.

The research was conducted through direct interviews with 1,731 global participants, including 868 investors and 863 issuers over a five-week period concluding at the end of June 2018.

However, despite the widespread recognition that ESG metrics have an impact on performance, fewer than 10% of those polled said that they held dedicated ESG investment funds. And, of those investors who don’t currently hold dedicated funds, 58% said the lack of consistency in definitions prevented them from doing so.

Regulation push

Daniel Klier, HSBC’s group head of strategy and global head of sustainable finance, said investor concerns about a lack of standardised definitions of ESG metrics have been noted by the market and action is imminent.

He said: “The market is now looking to regulation [of ESG metrics] 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 Task Force on Climate-related Financial Disclosures (TCFD) providing a framework for doing so, implementing the recommendations is now a pressing global priority.”

Klier added that the broader investor recognition of a link between ESG and financial returns was encouraging, however.

“This shift towards prioritising financial returns illustrates investor engagement has improved and that market forces are encouraging behavioural change,” he said. “Put simply, ESG, climate finance and risk management are moving mainstream.”

MSCI integrates ESG

This comes as index constructor and ratings agency MSCI has announced that ESG-metrics have now been integrated into its risk analytics systems.

The company said it had made the changes because of rising demand from investors for sustainability data to be weighed-up during the investment process.

“Asset owners are increasingly demanding systematic integration of ESG data into their investment process,” the company’s managing director and head of analytics, Jorge Mina, said in a statement.

“We are pleased to offer the full suite of our MSCI ESG Ratings and tools to help our clients incorporate ESG analysis into the risk management process, and construct ESG and climate-integrated portfolios.”

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