Environmental and social issues have never been more prominent in capital markets. New strategies, funds and financing instruments that engage with these issues are emerging at an accelerating pace.
This reflects the consensus among almost all players now that sustainability is a core dimension of value, according to our global survey of 2,000 market participants.
The research was conducted in July and August when market participants around the world had been dealing with the savage effects of the coronavirus on the economy for several months.
With markets hugely volatile as governments’ and central banks’ responses to the pandemic have played out, market participants’ thinking on sustainability has been affected in a variety of contrasting ways — and often with notable differences between regions and even individual countries.
Some might expect this to make them take their focus off sustainability and environmental, social and governance (ESG) issues. Instead, the pandemic has made issuers and investors more convinced than ever of the need for sustainability. Nearly 30% of investors (and 40% in Asia) affirm that the pandemic has strengthened their commitment to considering ESG issues. Of issuers, 41% now believe even more strongly that becoming sustainable is important.
Only a tiny proportion (some 1.5%) say the pandemic will make them reduce emphasis on ESG permanently. A somewhat more statistically significant group (9% of investors, 12% of issuers) have put it on ice temporarily.
“There is strong support for further growth of the green, social and sustainable bond markets”
These positive responses — in the face of a global pandemic with unprecedented and still unfolding impact — underscore how central sustainability is becoming to financing and investing, all over the world.
Of the 1,000 issuers and 1,000 investors who answered our detailed questions, 89% regard environmental and social issues as important. Among issuers, the proportion is 93%.
This consciousness is very firmly rooted in all the regions and major markets we surveyed: in Asia, the Americas, Europe and the Middle East.
Finance practitioners have not just recognised the seriousness of these issues — they are determined to act themselves, by making the way they invest, raise capital and allocate it to projects more informed by sustainability.
There is strong support for further growth of the green, social and sustainable bond markets: 36% of all bond investors do not buy these bonds yet, but expect to start buying them seriously for the first time.
Moreover, many make a greater claim for sustainable finance — not just that it is important, but that it pays for itself. Half (49%) of investing institutions around the world argue that factoring environmental and social issues into their strategies improves portfolio returns and/or lowers investment risk.
This is down slightly from 54% a year ago, and is one of many areas of the survey that reveal the profound and complex impact of the COVID-19 pandemic on sustainable finance. Among investors, 87% say it has changed how they consider environmental, social and governance issues, while 92% of issuers say it has altered their approach to sustainability.