An increasing number of Asian issuers and investors are starting to widen their horizons to include the impact of environmental, social and governance (ESG) issues in their considerations, a new report from HSBC says. HSBC’s Sustainable Financing and Investing Report 2019 showed that in Asia, 86% of investors and 84% of issuers said ESG factors were ‘very’ or ‘somewhat’ important to them, close behind the global figure of 94% and 93% respectively.
HSBC in Malaysia had taken the lead in sustainable investment by launching the FIRST-ever Environmental, Social and Governance (“ESG”) Islamic Structured Product in the Malaysian market. This is also in line with Bank Negara Malaysia’s Value-based Intermediation (“VBI”) initiative which seeks to ensure that the development of Malaysia financial market is consistent with the current focus on global sustainability agenda. In addition, HSBC Amanah Malaysia Berhad (HSBC Amanah) had launched the world’s first United Nations (UN) Sustainable Development Goals (SDG) sukuk.
Fifty-eight per cent of Asian issuers say they care because it aligns with their values as an organisation, and 62% of investors because it is right to care about the world and society. The survey also suggests Asia is ahead in being more attuned to the commercial benefits of ESG investing and financing. Fifty-eight per cent of Asian investors care about environmental and social issues because doing so can improve returns or reduce risk, compared to 54% globally. 47% of issuers say prioritising ESG can improve returns, more than issuers in any other region surveyed.
Asian investors report fewer obstacles to ESG investing than counterparts in other regions, although 22% complain of a shortage of ESG investment opportunities, while 18% say there is a lack of ESG disclosure by issuers. Some 24% of Asian issuers make no ESG disclosures, twice the share of any region, while under 20% of investors disclose the ESG characteristics of portfolios, against around 25% globally.
The recommendations of the Task Force on Climate-related Financial Disclosures (TCFD) are an example of a common standard that issuers and investors could align with to improve ESG disclosure. Only around 40% of issuers who responded to the survey currently follow the TCFD recommendations. Jonathan Drew, head of sustainable finance for Asia-Pacific at HSBC, said: “Environmental and social factors are becoming priorities for both issuers and investors in Asia, and there is increasing recognition that these factors are drivers of yield and value. “This survey shows some really encouraging progress and momentum, but we must not kid ourselves that the transformation of Asia’s financial markets necessary to meet the climate challenge is complete. “We must now ramp up efforts in all areas from capturing the hearts and minds by raising awareness and engagement through to the technical disciplines of risk analysis and disclosure.”