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Two-thirds of institutional investors utilize ESG policy – report

Two-thirds of institutional investors and almost half of companies globally have an environmental, social and governance policy in place, according to survey of 1,731 companies and institutional investors, sponsored by HSBC Holdings and conducted by East & Partners.

The report, "Sustainable Financing and ESG Investing," in its third year found that 84% of European investors, 82.5% of Canadian investors, 58.1% of U.S. investors, 55.4% of Gulf Cooperation Council investors and 40% of Asian investors had an ESG strategy in place.

However, only 10% of 868 investors and 8% of 863 companies interviewed in the survey are aware of the Task Force on Climate-related Financial Disclosures' guidelines to providing ESG-related data to stakeholders, the survey found.

Financial returns, followed by regulation and tax incentives were investors top three drivers for incorporating ESG into the decision-making, with 48.4% of investors citing financial returns and 46.5% naming tax incentives. Regulation figures were not provided.

Investors rated their reputational performance, financial returns and shareholder engagement as being better as a result of their ESG commitments, HSBC discovered. On average, investors said ESG investments had 2% higher returns than the rest of their portfolio.

Among the three most common ESG styles as defined by the Global Sustainable Investment Alliance, some 47.5% of investors globally integrate ESG factors, 42.2% use negative screening and 41.8% focus on sustainability-themed investing. But all investors that have an ESG policy use a combination of at least three styles, except for the U.S., which uses 2.6 on average and Hong Kong pension funds and sovereign wealth funds with average of 4.4. By comparison, the majority of global money managers use two styles, while only GCC-based money managers used more than three styles.

"Put simply, ESG, climate finance and risk management are moving mainstream. The market is now looking to regulation to provide clarity and definition, especially as inconsistency of definitions is an issue for all. With the providers of capital looking for enhanced disclosure, and TCFD providing a framework for doing so, implementing the recommendations is now a pressing global priority," said Daniel Klier, HSBC's group head of strategy and global head of sustainable finance, in a news release.