Guests Patrick Kondarjian and Daniel Klier discuss the evolution of sustainability and ESG-related factors, the components for changing systems in relation to ESG, challenges and evolution of ESG investing, the significance of nature and data challenges in emerging markets, and the need for improved ESG reporting and outcome-oriented measures.
Sustainability has become a fundamental consideration, with capital allocation and business organization now heavily influenced by ESG factors.
The future of sustainability involves a shift towards thematic investing and increased focus on nature-related activities, supported by improved data and AI tools.
Deep dives
Progress in Sustainability
Sustainability has made significant progress in recent years, particularly in the areas of energy transition and sustainable finance. Investments in the energy transition have reached record levels, with $1.1 trillion invested globally in 2022, marking a 31% increase from the previous year. The bond market has also seen substantial growth, with 1 trillion+ of issuance in green, social, sustainable, and sustainability bonds annually. Additionally, 65% of all ETF inflows in Europe in 2022 were ESG-related. Furthermore, companies and banks are now integrating sustainability into their DNA and decision-making processes, with chief sustainability officers playing pivotal roles in shaping strategies and capital allocation.
Key Challenges in Sustainability
Despite the progress, sustainability still faces some challenges. One major challenge is the level of confusion in the market due to different regulations and standards, causing investors to be unsure of how to classify and evaluate sustainable products. Another challenge is the slow pace of change in moving capital towards sustainable areas. Currently, 71% of companies worldwide are not aligned with net-zero transition pathways. Incomplete data is also a hurdle, as good data is crucial for effective decision-making. Private and emerging markets tend to have incomplete data sets, making it harder for organizations to fulfill their sustainability commitments.
New Frontiers for Sustainability
The future of sustainability lies in several new frontiers. One area is the shift from simplistic ESG scores to a more thematic approach, where investors focus on specific outcomes and impacts related to nature, climate, circularity, or diversity and inclusion. The integration of improved data and AI tools enables investors to make more informed decisions and allocate capital in a way that aligns with their desired impact. Another frontier is the focus on nature and biodiversity. Investors are increasingly interested in investing in nature-related activities and managing risks associated with nature. The emergence of task forces like TNFD (Task Force on Nature-related Financial Disclosure) is expected to bring greater transparency to nature-related data and investment opportunities. However, challenges remain in connecting local nature impacts to the actions of companies within their supply chains, as well as building better ESG reporting frameworks for companies in emerging markets.
Over the last few years, sustainability and ESG-related factors have gone from being a secondary consideration to being a driving factor for how capital is allocated and how businesses are organised and run. In this episode, we look at what this evolution means, how it affects the business and financing worlds, and what comes next in this crucial topic. Guests Patrick Kondarjian, Global Head of Sustainability for Markets and Securities Services, HSBC, and Daniel Klier, Chief Executive Officer, ESG Book, are joined by host Gabriela Tennhard, Global Head of Market & Strategic Insights for Markets & Securities Services, HSBC.