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Responsible Investment Insights

The path to sustainability: milestones and markers
11 March 2024

    Key Highlights:

    • Investment in environmental solutions is growing, but still insufficient, particularly for adapting to new climate extremes already being experienced
    • A just transition and inclusive growth should be prioritised by investors, given the positive implications for economies and businesses
    • Rapid advancements in climate and other technologies, such as artificial intelligence, bring into focus the evolving frameworks and policies to support progress, manage risks, and deliver transparency around company ESG impacts

    Environmental investments are growing but remain insufficient

    Reducing carbon emissions remains a pressing problem as average global temperatures continue to rise. Indeed, investors regard decarbonisation as the top priority in the coming year, according to the HSBC ESG Sentiment Survey conducted in 2023. Technology can play a key role in providing solutions to limit climate change and in helping societies adapt to the impacts of climate change already being felt, while regulatory developments can also drive progress.

    Despite growing investment, a further USD250-USD350bn is needed annually to address adaptation needs alone, and the financing gap is widening. We expect investor emphasis on pressing needs such as climate resilience and biodiversity to grow, given risk exposures are significant, with roughly half of company market value listed on major exchanges exposed to at least moderate financial risk through dependence on nature.

    Prioritising a just transition and higher morale

    Progression of green technologies means changes to industries and jobs. This can have an outsized impact on some segments, such as workers in developing markets, given the higher proportion of carbon intensive industries in these countries compared to advanced economies. A just transition will ensure that neither developing countries, nor workers in carbon-intensive industries in developed countries, bear a disproportionate burden in the transition.

    Investors should also consider how companies deliver such inclusive growth. In addition to reducing broader economic risks from inequality and social unrest, studies have shown that companies which treat their employees better have delivered better results.

    More transparency required with challenges remaining

    Positive change is occurring in terms of data availability, reporting outcomes, and increasing scrutiny on various types of ESG activities. Global disclosure standards are also developing rapidly. Over three-quarters of respondents to our HSBC ESG sentiment Survey support the gradual convergence of sustainable investment regulations in Asia with European standards. This is in investor interests, given that shares of Asian companies aligned with the EU taxonomy have produced price premiums relative to their peers.

    More progress in transparency and regulatory convergence is still needed and will allow investors to apply sustainability considerations more rigorously across the global investment universe. This will also support ability to achieve the desired real-world outcomes, such as stopping rising global temperatures.