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HSBC ESG Sentiment Survey - The reach of regulation
- Regulations are increasingly driving ESG integration, our fourth ESG Sentiment Survey finds
- We also explore the growing interest in biodiversity and carbon credits
- Respondents represent cUSD11.5 trillion in assets under management
The survey, conducted from 2 to 24 February 2023, had a sample size of 422 from professionals working in financial services across the globe, in roles related to ESG decision making. Respondents represented 390 institutions with cUSD11.5 trillion in assets under management.
Regulations: Their influence on ESG is growing and moving from acting as a gentle nudge on behaviour to more like a stronger push in some areas. It shows up as a steadily growing reason for funds to have an ESG strategy. And regulators are seen as the stakeholder with most responsibility for driving sustainability.
Asia is catching up in terms of ESG. Fund flows indicated a stronger interest in Asia.
Surprise 1: Of those that responded, two-fifths reported net inflows into their ESG strategies over 2022, much more so than those that reported net outflows. There was a balance between general inflows and ESG inflows which we see as showing that ESG is a significant part of fund inflows, rather than a driver of fund inflows.
Surprise 2: Only a tenth of respondents benchmarked their funds against an ESG index. There were three times as many that used a traditional index as a benchmark for their ESG strategies. Even more surprising was that many ESG strategies were not benchmarked at all, but rather, were absolute return funds.
ESG incorporation: This has fallen a little from October 2022 and from a year ago. However, a majority of participants thought that the change in ESG incorporation over 2022 was as expected. Well over half anticipate more incorporation over 2023.
ESG themes: Climate change continues to dominate. And we are beginning to sense that climate is potentially taking focus away from other themes as it features so heavily in disclosures and national strategies. Water-related and pollution are themes to watch.
Topical issues – biodiversity and carbon credits. Despite the growing interest from investors in these issues, there seems to be some caution when it comes to actually investing in them.
Integration. This is still the preferred approach to ESG although a new option of thematic investing garnered almost a tenth of responses while scoring/rating fell.
A dive into sustainability-linked bonds reveals it is now the least popular approach to embedding ESG in fixed-income portfolios – with over two-fifths not interested in buying them and a fragmented minority who prefer them, or buy them normally or opportunistically.
Actions and intentions are moving forward. There was a rise in the proportion of respondents that were signatories to the United Nations-supported Principles for Responsible Investment.
ESG could be mainstream within a decade. Well over a third of participants believe this would happen in the next 5-10 years, with a further quarter going for an even shorter less than 5 years. Over a tenth saw it being mainstream in over ten years and a fifth expect it will never happen.
First published 13th March 2023.
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