1. A higher number of investors (31%) understand the importance of socially responsible investment without the need of a regulatory ‘stick’ compared with 2019 (21%)
2. ESG strategies, as expected, vary depending on the fund, asset class, or geography as investors deal with disparate data and objectives
3. In-house ESG expertise are preferred over advice from ESG rating agencies
4. Investors agree that for regulations to be impactful they need to be focused and specific, and investor initiatives that are impactful need to be open to as many investors as possible
5. Substance, not labels, enhance ESG credibility. The top two actions cited by investors, showed ‘issuers commitment to sustainability’ as being disclosure-based, (33% of investors cited quality reporting and targets), with validation from external parties being cited by less than 5% of investors
6. Geographical width and economical depth – investors show clear appetite for sustainability debt from new markets and new sectors
7. Trading premium for sustainability debt has become acceptable.

At the same time, only 8% of respondents refer to ‘regulatory pressures’ as the reason behind incorporating sustainability strategies.

What have been the two main motivations to incorporate sustainability strategies?

The extensive media coverage about ESG in all its facets already suggests that sustainability has transformed from being a ‘niche’ idea of altruistic impact investors to a concept every organisation urgently needs to adopt and internalise. Our survey results reflect this: 42% of respondents said they are using ESG integration as their sustainable investment strategy (compared to 28% in 2019).

Our results also show that ESG strategy differs across organisations: a total of 62% of investors made the point that the application of ESG analysis depends on the type of fund, asset class, geography or other reasons.

Is your organisation's ESG strategy consistently applied across investments?

At the same time, investors are still cautious to put their money into sectors and issuers that claim to be committed to their sustainability journey, if those issuers’ operations land them on the ‘red list’ of companies listed under the typical exclusionary policies of investment firms.

However, the door isn’t fully closed for such excluded issuers: a total of 41% of respondents stated that they would consider an exception to the exclusionary policy if the KPIs or use of proceeds in the sustainable financing framework of those issuers met the expectations for a credible sustainability strategy.

If your organisation has policies to exclude sectors or issuers, would the use of a market-aligned sustainable financing framework by an issuer, for its debt financing, allow for an exception and investment?

While the market of ESG rating agencies is flourishing, with ESG-specialists firms having successfully entered the market and the big credit rating agencies either organically growing ESG focused subsidiaries or boosting their ESG expertise through acquisitions, only 8% of investors in our survey said they significantly take into account credit rating agencies’ assessments of how ESG factors impact credit ratings.

Consequently, over 50% of investors said they rely on in-house expertise, with 25% of firms employing dedicated ESG analysts.

When analysing issuers, to what extent do you use or refer to the Credit Rating Agencies’ specific assessments / modifiers of how ESG factors impact credit ratings?

Consequently, over 50% of investors said they rely on in-house expertise, with 25% of firms employing dedicated ESG analysts.

Who in your organisation is primarily responsible for ESG analysis?

Yet, there’s only so much that in-house ESG specialists can do, as 35% (an increase of 4 percentage points on 2019) of the respondents bemoaned the lack of reliable ESG data.

The survey results also suggest that investors are increasingly going for a more holistic issuer assessment with issuers’ sustainability strategies at the heart, rather than just relying on the nitty-gritty of the framework: over 40% of respondents said that their assessment methods relate directly to the issuers’ internal sustainability strategy or disclosure.

Which two factors are most important when assessing the robustness of sustainable finance frameworks?

Our 2021 ESG investor survey results also highlight the growing focus of investors on both, mandatory ESG regulation and voluntary initiatives.

Looking at the regulatory landscape, investors rate European regulations, such as the Sustainability Finance Disclosure Regulation (which requires asset managers to provide standardised disclosures on how ESG factors are integrated at both an entity and product level), the EU taxonomy and the EU Green Bond Standard as particularly impactful. 

Please select two proposed /existing regulations you find to be most impactful on the sustainable finance market

Alongside regulation, voluntary initiatives are making an impact: the UN PRI, which encourages investors to use responsible investment to enhance returns and better manage risks, and the Net Zero Asset Managers Initiative, an international group of asset managers committed to supporting the goal of net zero greenhouse gas emissions by 2050 or sooner, are praised as most impactful (meaning ability to achieve their goals) by our survey respondents.

What ESG investor coalitions / pledges do you consider most impactful as an investor?

The action considered by investors to best underscore an issuer’s commitment to sustainability is the quality of sustainability reporting, which goes back to investors’ concern about a lack of credible ESG data.  Clearly, it’s crucial for issuers to have their “house in order”, in terms of reporting and strategy.

Meanwhile, validation from third parties, either in terms of index inclusion, awards or ratings, don’t enhance ESG reputation for investors as much as some issuers may hope: Less than 5% of our survey respondents considered those to be reliable indicators for sustainability commitment.

Which two actions best underscore an issuer’s commitment to sustainability?

In line with investors’ knowledge about sustainability debt increasing, appetite is rising for sustainability debt issuances from emerging markets and from new sectors, which would help investors obtain a more diversified portfolio.

Select up to three types of sustainability debt issuance you would most like to see

Select up to four sectors from which you would like to see more sustainability labelled debt supply

The reassuring message behind these results:  sustainability debt issuances are entering mainstream around the globe.

Finally, over 90% of investors believe that sustainability debt Use of Proceeds bonds will trade with either a modest or meaningful premium – in 2019 that number was only 52%, and 35% of investors in 2019 believed that sustainability debt UoP instruments should trade with zero premium.

Noting the scarcity of sustainability debt “Use of Proceeds” bonds, would you expect these instruments to trade at a premium/discount for the foreseeable future (6-12 months)?

Definitions

1.     Sustainability debt includes green / social / sustainable / sustainability-linked financing

Our survey respondents

• Our survey was completed by leading ESG-focused investors globally –with 29% having dedicated ESG funds and further 50% using a mixture of ESG strategies
• Investors from around the world participated with 30% from the UK, 35% from Europe, 18% from North America and 17% from Asia
• Majority of respondents were portfolio managers and 20% being dedicated ESG analysts
• This survey covered a range of asset classes from Alternative credit to rates; 69% focused on investment grade credit (corporates and financials), 14% focused on Rates (governments, supranational and covered bonds), and 13% covered High yield assets