A growing number of institutional investors now have a company-wide policy on ESG investment, with the largest firms leading the way, according to new research.
HSBC’s sustainable financing and investing survey 2021, which polled around 2,000 issuers and institutional investors, finds 59 percent of investors have a general ESG policy in place, up from 52 percent last year. Big firms are more likely to have such a policy, HSBC says: 85 percent of large investors (those with more than $25 bn in assets) have implemented a company-wide approach, versus 34 percent of smaller institutions (less than $1 bn).
The research also explores which topics are normally covered by ESG policies at institutional investors. The most common area is an approach to identifying material ESG issues (mentioned by 57 percent of investors), followed by impact goals or metrics (46 percent) and disclosure of the ESG characteristics of selected portfolios (45 percent).
Alongside the spread of company-wide policies, institutional investors are seeing fewer hurdles to embracing ESG integration, according to HSBC. Nearly two thirds (64 percent) of investors say nothing is holding their firm back from ‘pursuing ESG investing more fully and broadly,’ up from 54 percent last year.
Among the investors that say they still have challenges to overcome, the most common area identified is a lack of expertise or qualified staff, followed by regulatory or legal constraints and a lack of comparable ESG data across issuers.
On the latter point, investor concerns have declined notably over the last 12 months. This year, less than a third (31 percent) of investors say difficulty in comparing ESG data between companies is a hurdle to ESG investment, compared to 50 percent in 2020.
The proportion of investors worrying about poor returns from ESG investments has also fallen, from 39 percent in 2020 to 25 percent this year.
‘This change perhaps reflects the increased breadth of the ESG investment universe and the strong performance of companies in the sector over the past year. Not all segments feel this way, however,’ the report authors write.
‘While most sovereign wealth and pension funds say their main impediment is the lack of comparability of ESG data across issuers, they also claim there is a lack of attractive investment opportunities; such investors’ need for sizable investments may be the stumbling block.’
The comparability of corporate sustainability information has been helped by the adoption of certain reporting standards and frameworks, such as SASB, GRI and the TCFD recommendations. More than half of the S&P Global 1200 are now using the SASB standards in their communications with investors.
