Claire Dorrian
Sustainable finance and investment: From nice to normal.
Sustainable finance is now mainstream. Surveys and reports produced across the London Stock Exchange Group (LSEG) show growing numbers of investors and corporates embracing sustainable finance practices, products and disciplines. But, even as sustainable finance has moved from niche to normal, investors and corporates alike face challenges and barriers to implementation that need to be addressed to accelerate progress.
Perhaps the strongest signal comes from those at the top of the investment chain. The majority (88%) of asset owners who responded to the FTSE Russell 2022 Sustainable Investment Survey stated that they are implementing or evaluating sustainable investment considerations into their investment strategies – nearly double the percentage from five years ago.
That interest is being clearly heard by investee companies. The 2023 LSEG Investor Relations Study, which polled 129 investor relations specialists at a range of publicly listed and private companies, revealed that investor interest in ESG policies and performance was on the rise. Three-quarters believe that investors are more interested in sustainability than two years ago. Similarly, respondents expect that interest to keep growing. Seventy percent said that existing investors are likely to become more interested in sustainability over the next two years.
Change in importance of sustainability to existing investors vs two years ago
Source: 2023 LSEG Investor Relations Study
| Increased significantly | Increased somewhat | No change | Decreased somewhat | Decreased significantly |
|---|---|---|---|---|
| 20% | 54% | 17% | 6% | 3% |
Corporates are talking sustainability
Naturally, this interest is triggering action from investee companies, who are increasingly seeking to provide investors with the information they need to inform sustainable investment decisions. It found that more than half of the companies had developed new ESG strategies or policies in the previous 12 months. Around three in five companies also produced materials with ESG information or communicated ESG credentials and achievements.
ESG considerations are becoming embedded into business strategy by companies with capital requirements. In February, cash management platform TreasurySpring released the results of its 2022 Sustainable Finance Survey. Conducted in partnership with the London Stock Exchange and investment portal ICD, the survey sought to understand how treasury teams are thinking about sustainable finance. It found that 87% of respondents consider ESG investing to be somewhat or very important to their organisation.
Dealmakers on the march
Similarly, a recent survey of investment bankers, advisory firms and consultants involved in mergers and acquisitions and capital raising found sustainable finance considerations high on the agenda. LSEG’s 2023 Deal Makers Sentiment survey, which polled 551 investment professionals, found that 60% of respondents said that sustainable finance impacted their role in 2022 – and a further 13% said they expected it to do so in 2023. This figure is broadly in line with the previous year’s survey – and is despite respondents noting the political headwinds that sustainable finance and ESG investing has faced in some jurisdictions over the last 18 months.
But the growing embrace of sustainable investing is not without its challenges. Several of these surveys have highlighted obstacles to investors and corporates.
For example, the TreasurySpring survey found that a lack of standardisation and regulation is a major hurdle for 19% of respondents, with a similar figure citing a lack of supply of products for ESG cash investing. Eighteen percent admitted to insufficient knowledge around sustainable finance, with 15% citing concerns over greenwashing as a deterrent to investing.
Respondents to surveys LSEG has produced or commissioned:
| Survey | Respondents |
|---|---|
| Sustainable Investment Asset Owner Survey | Asset Owners |
| Deal Makers Sentiment Survey | Investment Banks, Consultants, Advisory firms |
| Investor Relations Study | Investor Relations |
| Sustainable Finance Survey | Corporate Treasurers |
Data challenges
Companies continue to face challenges in providing the data expected by investors. The investor relations survey found 34% of respondents reporting a high level of difficulty in submitting ESG data. Of particular concern is the finding that the majority of companies with revenues of less than £100 million a year do not provide investors with ESG information at all. Larger companies typically have more resources internally or budget to outsource ESG disclosure, whilst smaller companies may not have established sustainability teams, large investor relations teams, or the capacity and expertise to gather material ESG information.
This can deter investment from investors concerned about ESG risks and opportunities, raise red flags among ESG analysts, and impact ESG ratings. In addition, the process of collecting and disclosing ESG data can help bring greater rigour to a company’s ESG risk management, as well as generate strategically valuable insights.
Sustainable market sentiment
The takeaways from these indicators of market sentiment are clear:
- Sustainable finance is becoming increasingly integrated into how our financial system operates. At LSEG, we continue to combine sustainable finance and investment-related data into our products; our ESG data is available in Refinitiv Workspace, Yield Book and Issuer Services, and it is used to create FTSE Russell indices.
- Investors recognise that ESG factors can be material and must be considered during capital allocation decisions. Analysis into what ESG data is material has been a hot topic for years, and much of this research requires transparent and normalised data. With around 700 content analysts working on our comprehensive ESG database, LSEG is ideally placed to help analysts with their research on capital allocation decisions.
- Corporates are working hard to provide investors with the information they need. We realise it’s not always easy to identify the metrics to report against and to gather the information required. We have shared our learnings from reporting requirements and published our policy recommendations, as we continue to enhance our corporate ESG reporting solutions.
- Financiers are moving the market forward with new sustainable finance products and services. We are continuing our history of innovation by partnering with the market to produce ESG- and climate-focused indices and regulatory-focused solutions. We were the first exchange to set up segments for green bonds in 2015, which developed into the Sustainable Bond Market in 2019. Last year we continued our innovative approach with the launch of our Voluntary Carbon Market, becoming the first exchange to use a public market framework to facilitate the funding of climate mitigation projects that generate carbon credits.
It is incumbent on companies like ours, which provide the infrastructure, information, insights and platforms that enable finance to flow from investors to the corporates that need it, to help lower the barriers that still exist to the wider uptake of sustainable finance. These surveys, our ongoing conversations with market participants, our expanding network of LSEG Sustainable Finance and Investment experts, and our 20-year history in the space are giving us the insights we need to continually improve our sustainable finance products and services and shape the industry through our policy and lobbying engagements.
As always, we stand ready to further accelerate the mainstreaming of sustainability into how the financial sector does business.
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