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The ESG Brief - What 352 finance professionals are telling us
33 Plays2 years ago
Wai-Shin Chan, Head of ESG Research and the Climate Change Centre, weighs up the results of our third ESG Sentiment Survey and finds few big wins from the recent COP27 global climate negotiations.
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Transcript
Introduction and Podcast Overview
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Welcome to HSBC Global Viewpoint, the podcast series that brings together business leaders and industry experts to explore the latest global insights, trends, and opportunities.
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Make sure you're subscribed to stay up to date with new episodes.
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Thanks for listening.
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And now onto today's show.
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The following podcast was recorded for publication on the 7th of December by HSBC Global Research.
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All the disclosures and disclaimers associated with it must be viewed on the link attached to your media player.
ESG Insights from Finance Professionals
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Hello and welcome to the ESG Brief, our showcase of key research by HSBC's environmental, social, and governance analyst.
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I'm your host, Jack Reed, and in this edition, we'll be looking at the views and opinions of finance professionals, 352 of them to be exact, working specifically in roles related to ESG.
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They represent around $10 trillion in assets under management from over 300 financial institutions.
Impact of Inflation on Sustainability
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and they participated in HSBC's third ESG sentiment survey of 2022.
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The first survey was conducted before the Russian invasion of Ukraine and the second in June.
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To help digest what they're now thinking on key ESG issues, I'm joined by the head of ESG research, Weishen Chan.
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Weishen, welcome.
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It is fantastic to be here, Jack.
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Thank you very much.
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So the background here is that this survey was conducted over a month-long period by the polling and market research agency Survation on behalf of HSBC at the start of the fourth quarter.
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You will need little reminding that this period included the setting of record rates of inflation in many parts of the world, and nearly 60% of respondents told us that rising costs would have a negative impact on sustainability.
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Two questions to get us underway, Weishin.
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Are you surprised inflation has drawn such a big response?
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And how does this negative impact actually play out?
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We're not surprised at the magnitude of the numbers.
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So 60% is about right.
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We were expecting it to be more of a hindrance than a catalyst.
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I think what we should emphasize is that more we're thinking it would be a long-term hindrance as opposed to a short-term hindrance, but a hindrance nonetheless.
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Now the way we would expect this to play out very, very roughly would be a company sees its raw materials rising, it sees its logistics and transport rising and its labor costs rising due to inflation.
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And so they're thinking about where can they find the money from to pay for all this.
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And a way to squeeze that could come from the execution of sustainability strategies.
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So maybe you don't put in the money to upgrade that more efficient,
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equipment or you don't put in the lower carbon technology that you were planning to or that you actually delay that for a few years.
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So that's the sort of logical thinking around that.
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And is it a setback to the climate agenda?
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It is a potential setback.
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I think inflation changes the economy in various ways, and this could be one of them.
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But then what I'd like to emphasize is that the urgency of dealing with at least climate change has not gone away.
Water as a Key ESG Issue
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And I think we saw that at the recent COP27 dialogue in Egypt.
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We're going to come back to the COP27 talks in a moment, but first a little bit more detail on the sentiment survey.
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Another nugget was the weight that respondents attached to water as a priority environmental issue.
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Water edged up to third place just behind decarbonization and climate resilience.
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How do you explain that?
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so water was a big issue in the sort of esg space i'd say about eight to ten years ago and kind of fell away from mainstream investor interest as climate change itself got more prominence when we're talking about water related issues what we're really talking about is the availability of water and the quality of that water this year what we have seen is an increase in record-breaking extreme events
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So the floods in Pakistan, in Australia, the droughts we saw in China, in Africa.
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This has really put a spotlight on the effects of water and how important it is to not just economies, but also to livelihoods as
Regulatory Impact on ESG Investments
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well.
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It's interesting to see it come back after a bit of a seven, eight year hiatus.
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Let's turn to regulation, which you describe as a running theme throughout the survey.
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What impact is tighter regulation going to have?
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ESG means a lot of different things to a lot of people.
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And we've seen that in the past few years, a rapid growth.
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Some might say growth that was too quick.
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in terms of the way ESG is played out, which has led to the tolerance of greenwashing.
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Now, the regulators have come back into play and say that's not acceptable.
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We don't want greenwashing.
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We want more sustainability, integrity, so doing things for the right reasons in the right way.
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And so we've seen regulators clamp down on the way the standards are bearing out for corporate disclosures on ESG.
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We're seeing the same with fund disclosures.
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in ESG across various jurisdictions and we're beginning to see the regulators tighten up their standards around ESG rating providers and possibly also ESG indices.
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And so regulations was really a strong theme in nudging ESG behaviour in terms of the way that investors are looking in ESG, the way their frameworks take ESG into account and what they're going to focus on going forward.
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And what impact is likely from this nudging by regulators on assets under management?
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The way I see it having an impact is a trimming of AUMs.
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Those funds or investment approaches that claim to have ESG and under the close examination of the regulator may not be as ESG as they thought.
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We're seeing some downgrades there in terms of maybe in one extreme case, funds no longer labeling themselves as ESG whatsoever.
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So we're seeing a decline in AUMs as a result of that.
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But most prominently in Europe, and it's been in the media quite a lot recently, in terms of those under the Sustainable Finance Disclosure Regulation, more commonly known as SFDR, have been downgrading their funds.
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It's a big deal in Europe at the moment.
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So what do you think?
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Have we hit a plateau on ESG-related funds?
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I think the long-term implications are not necessarily a plateau, but a refinement of ESG into quality rather than quantity.
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So it's not the volume of AOMs that is really a number we should be looking
HSBC's Market Insights and COP27 Review
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at.
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It should be the quality of the impact and what they're contributing to sustainability topics and the overall ESG debate that I think is more important.
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I'm Fred Neumann.
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And I'm Harold van der Linde.
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And you can find us under the Banyan Tree.
00:07:23
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Join us weekly on our new podcast, where we bring Asian markets and macroeconomics into context with special insights from our regional experts here at HSBC Global Research.
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Search for HSBC Global Viewpoint on Apple Podcasts or Spotify, or join us via the HSBC Global Banking and Markets page on LinkedIn.
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Now, enjoy the rest of your podcast, and we'll see you under the Banyan Tree.
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Let's talk now about the COP27 talks in November and Sharm El Sheikh.
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Would you agree that your report on the outcome was a pretty sober assessment?
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I was not expecting too much from COP27 because it was never designed to be a major COP for big decisions.
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There were slivers of optimism.
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The most headline grabbing is the establishment of a loss and damage fund for developing countries that are most vulnerable to the impacts of climate change.
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Everything else really didn't show that much progress, to be honest, in terms of the finance, the development of the goals on adaptation, and the geopolitical distractions that we've seen throughout 2022 have certainly had an effect on this.
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What it does do is continue to raise the public's awareness of climate change and everyone coming together in one venue every year, world leaders, NGOs, civil society,
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various politicians and scientific experts is really, really important for raising awareness.
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And I think there was a lot of interest from a lot of our investor clients on that.
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One of the aspects of the COP27 meeting you flagged up in the report was the lack of ambition towards that widely understood target of capping the rise in global temperatures from pre-industrial times to 1.5 degrees centigrade.
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Has the world just given up on that as a target?
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The scaling up of ambition at COP27 was indeed disappointing.
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COP26, if we cast our minds back to November last year in Glasgow, the whole point of that was to keep 1.5 degrees alive as a target, and they did that
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Fairly well, although, as Alok Sharma, the president of COP26, said, it's on life support.
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Now, there were no advancements to that one and a half degree target at COP27 in terms of raising the ambition.
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The wording in the cover decision text that came out of COP27 only asked for countries that have not already done so to revisit and strengthen their climate pledges,
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by the end of 2023.
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Now that same ask was had at COP26 and only around 30 countries have actually done so.
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So that was very disappointing.
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So there's no real reason to expect a major step up in ambition in doing the same task in 2023.
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At the same time, the wording was quite weak in the cover decision in terms of asking for more expansion of the way that fossil fuels are used.
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That never came.
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And also in terms of advancing a peak in global greenhouse gas emissions well before 2030.
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That never came either.
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So disappointing in that sense.
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I don't think the one and a half degree target will be jettisoned in any way.
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It is so important to the most vulnerable economies in the world because they are already suffering from very, very catastrophic and economically damaging economies.
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extreme events that are happening at just 1.15 degrees.
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So 1.5 degrees for them means the difference between life and death of a nation, for example, and that's vitally important.
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So they are not going to give up this one and a half degree target at any of these cops coming soon.
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Although I did say in my report that we think the one and a half degree target is alive on paper.
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The energy and the ambition wasn't apparent at Sharm el-Sheikh.
00:11:29
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Now you touched on the amount of headlines that came out of COP27 about the loss and damage fund, but no real mention of the earlier pledges for a $100 billion adaptation fund for those emerging nations put at risk by climate change.
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What's happened to that initiative?
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Climate finance is always a very, very big issue when it comes to these climate negotiations and throughout the year it's often mentioned as a key issue that needs to get over any breakthroughs when it comes to any economies making climate pledges.
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The establishment of the Lost and Damage Fund and the financing that may go into that, depending on who has access to it, who pays into it, etc., will run in parallel to the $100 billion that you mentioned.
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The $100 billion is a pledge by developed countries to developing economies made way back in 2009 and as of yet unfulfilled.
Focus on Biodiversity and Conclusion
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So this is in addition to, at the same time,
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At COP27 and also at COP28 and COP29 even, parties are going to be trying to discuss and come to an agreement on a new collective quantified goal on climate finance.
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So we'll have different tracks of climate finance heading out.
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But the funds going into...
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the loss and damage fund have not been agreed yet.
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So they've set up a transitional committee to hopefully flesh out all of these details in 2023.
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So that means for more complicated negotiations throughout the year and in the run-up to COP28.
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Weishin, thank you so much for joining me.
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Thank you for having me, Jack.
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The spotlight on climate change at COP27 in Egypt shifts now to nature and how to reverse the loss of biodiversity globally.
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The 15th meeting of the Convention on Biological Diversity in Montreal will be underway through the 19th of December.
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Wei Xin and the ESG team
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have just published a compilation of its research into the main issues at the conference and the key investment implications.
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And no doubt we'll be hearing more about that in the weeks ahead.
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But that's all the time we have now for this edition.
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Thanks very much for listening, and we'll be back in 2023.
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Thank you for joining us at HSBC Global Viewpoint.
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We hope you enjoyed the discussion.
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