European investors are often regarded as the original fount of consciousness about environmental and social issues in capital markets. However, our survey suggests they may have passed the baton to issuers — who now declare themselves more committed to these issues than investors.

Capital providers in other regions, meanwhile, have outstripped those of Europe in their enthusiasm.

Issuers all over the world now profess strongly that environmental and social (E&S) issues are important to them, but those in Europe are the keenest: 76% say these issues are very important and another 19% somewhat important. The global averages are 62% and 31%.

European issuers base this stance primarily on their values, with nearly two thirds regarding it as right to care about the world and society.

They are not just following their consciences, however. Over 40% report that NGOs and pressure groups want them to take ESG factors into consideration, while a slightly smaller share (36%) say their customers want them to. Over a third, above average, also judge that ESG considerations can improve investment returns. However, perhaps surprisingly, European issuers have a below average score for employees as a source of pressure for sustainability.

European investors, by contrast, are now a little below average for both the share who say E&S issues are important to any extent (79%) and very important (43% within that 79%). This may be to some extent because European investors have got used to a higher bar — perhaps what counts as treating E&S as ‘very important’ may be different from what would register in other regions.

“European investors exceed global peers in feeling responsibility to avoid investments with bad effects on the environment and society”

It may be for the same reason that a surprisingly low 43% of European investors say they have a firm-wide responsible investing or environmental, social and governance (ESG) policy — below the global average of 51%. UK institutions are the most developed in this area: 53% have policies in place.

Among investors in Europe, 30% intend to develop a policy, but if all of them do, it would still leave Europe well below global norms. French investors (38%) are the keenest in the region to create new policies.

Nearly a quarter have no intention of developing such policies. The resistance is strongest among German institutions, at 30%. Compared with peers, European investors also accept inequality, minimise the significance of climate change and view achievement of the UN Sustainable Development Goals (SDGs) as a job for governments rather than investors.

In addition, they are more pessimistic about the potential of ESG strategies to generate investment outperformance and more inclined to believe that ESG investing always involves lower returns and/or higher risk.

All the same, European investors exceed all global peers in feeling responsibility to avoid investments that make bad outward effects on the environment and society (61%, versus a global average of 55%).

Similarly, they are above average for choosing investments with good outward effects, whether or not these lower their returns. And European investors are also significantly more likely than those in other regions to always factor ESG considerations into their investment decision-making (39% do this, compared with an average of 31% globally).

Pandemic parting COVID-19 makes issuers change more than investors

Differences in engagement with sustainability between Europe’s issuers and investors also appear apparent in their responses to the coronavirus pandemic.

It appears to have struck home harder with issuers. The experience of COVID-19 has strengthened more than 35% of them in their belief that sustainability is important. Over 40% say the pandemic has made them realise social welfare is a more important part of sustainability than they had thought.

Moreover, fewer issuers in Europe than elsewhere say they have de-emphasised sustainability, either temporarily or permanently, as a result of the pandemic.

Asked how important a range of issues were to their organisations, in light of the pandemic, European issuers are generally second only to those in the Americas for the increased emphasis they place on them.

Those seen as more important now include sensitivity to society’s needs, scenario planning and stress testing, resilient supply chains and employees’ social wellbeing.

Investors’ stance is different. More than a quarter report that the pandemic has not changed how they consider ESG issues. Fewer than 15% say it has strengthened their belief in ESG’s importance. Moreover, a very above average proportion — over a fifth — have attached less importance to ESG temporarily as other issues became more important during the pandemic. This can also be seen in European investors’ high scores for treating some ESG issues as less important now in light of the pandemic — biodiversity, government relations, employees’ social wellbeing.

Infrastructure priorities Clean power tops list for issuers and investors

Europe’s appetite for sustainable infrastructure investment is strong — an encouraging sign, considering that the continent is embarking on programmes to reduce net greenhouse gas emissions to zero by 2050.

European issuers are one of the survey’s most enthusiastic groups in this area. They are exceptionally attracted to emission-free energy sources such as wind, tidal and solar power. European investors also see the greatest infrastructure investment potential in clean renewables. Energy in general is a notable focus for European issuers. They also lead global peers in their support for hydrogen power and are a close second to those in the Middle East for hydrocarbons seen as lower carbon, such as gas. However, European investors are less convinced of the potential for hydrogen and lower carbon fossil fuels.

Investors and issuers also diverge over the potential of carbon capture. Issuers see greater scope than their global peers do, despite the strong official support for this technology in Asia. However, their appetite for electricity storage technology lags that in Asia and the Americas. The same is true of smart city and water and waste water technologies. Investor counterparts are more positive, giving above average scores to both areas.

Disclosure drive European issuers get into the swing of disclosure

European issuers mostly embrace their disclosure of environmental and social information. They are the least likely in the survey to find the disclosures they make excessive (less than 4%, compared with an 11% global average), and they have the strongest and most positive expectations that they will increase disclosure (31% versus 24% globally). German issuers in particular foresee disclosing more, whereas their French and UK peers are below average on this measure.

Conversely, no region feels less unwanted pressure from investors and/or regulators to disclose more. However, despite this constructive stance, the 9% of issuers that admit to not making any disclosures is the largest of any region. French companies, at just 4%, are a clear exception, but the UK is an outlier in the other direction, with 16% saying they do not disclose. When it comes to the kinds of information disclosed, European issuers lead the world in reporting their carbon footprints, with 71% saying they do this, against a global average of 54%. They are also ahead on reporting other environmental metrics.

But European issuers in our survey are below global averages for reporting their strategies for climate change and alignment with the Paris Agreement. European issuers make notable use of corporate social responsibility (CSR) reports.

Between a quarter and half of issuers provide these for each of seven kinds of information. In four of these areas (climate change strategy, carbon footprint, alignment with the Sustainable Development Goals and other environmental impacts) more use CSR reports than their main annual financial reports as their primary vehicle.

This is not true of issuers in any other region. They all use annual reports primarily, or as much as CSR reports.