Although more than 60% of investors and nearly 50% of issuers worldwide have an environment, social, and governance (ESG) plan in place, these rates vary widely based on region, according to a report from HSBC, which also found that disclosure of ESG strategy and policy still has a long way to go.
According to HSBC’s research, ESG financial instrument penetration among issuers is 79% worldwide, however, there is a significant variance across regions. For example, it found that Hong Kong reported a penetration of 59.8%, while the UK had a penetration of 92.9%. On the investor side, penetration was lower across the board, with 65.6% involved in ESG investing worldwide. As with financial instrument penetration, there was also a wide disparity based on geography, with Asia recording the lowest level of penetration at 43.3%, including just 38.4% of Chinese investors reporting ESG investments.
The report found a much higher proportion of issuers involved in creating the ESG instruments than investors who invest in them. This gap is most notable in China, where 90.5% of issuers are using ESG financing, compared to only 38.4% of investors who have ESG investments. However, the gap is far narrower in Europe where 92.4% of issuers have ESG financing with 89.2% of investors involved.
HSBC said investors cited a lack of opportunity as the main reason they are not increasing their ESG investments, while issuers said they are not increasing ESG financing because of low investor demand.
The report also said that “disclosure of ESG strategy and policy is very much an ongoing ‘work in progress,’” adding that 52.4% of issuers and 38.6% of investors worldwide do not even have an ESG Strategy.
“In terms of ESG policy, we see a less transparent approach with 68.8% of issuers and 66.7% of investors not disclosing their policies,” said the report. “There are exceptions led by Europe, pension funds, and sovereign wealth funds in the UK and the Gulf States, but even in these markets there is a high level of overall non-disclosure.”
HSBC expects ESG investing to continue to increase globally, and said that although less than 10% of investors currently have dedicated ESG investment structures, they forecast this to grow by 20% over the next 12 months.
It added that regulation, financial returns, and shareholder pressure, or risk of negative publicity, are the main drivers that will help push the industry to work toward full disclosure and transparency.