Climate change

Greater environmental disclosure key to drive green investing, survey finds

Buyers wary of climate-friendly opportunities as information from companies tends to be sparse

PUBLISHED : Friday, 09 December, 2016, 5:13pm
UPDATED : Friday, 09 December, 2016, 10:34pm

Greater disclosure by corporations of their environmental impact and mitigation strategies is needed to induce investors to put more money into their projects that reduce carbon emission and help tackle climate change, according to a survey.

Two thirds of the survey’s institutional investor respondents were willing to deploy more capital on green investments but a lack of disclosure by potential investment targets was a key deterrent, the HSBC-commissioned survey has found.

“This survey suggests there is a significant pool of capital available to firms with strong green credentials, but an absence of climate disclosure by companies, and a shortage of investors accessing research into this market, is putting a brake on allocation,” HSBC’s climate business council head Andre Brandao said in a statement on Friday.

The global bank set up the council to drive expansion of financing business arising from projects that cut carbon emissions and other forms of pollution, such as clean energy and energy efficiency improvement projects.

Less than a quarter of the corporate respondents had disclosed their environmental impact, and only 13 per cent of them had strategies to tap into green finance instruments to support carbon reduction initiatives, the survey found.

Some 277 corporations, 276 institutional investors and 40 non-government organisations (NGOs) based in Europe, the United States, Middle East and Asia had responded to the survey.

The corporations have an average turnover of US$18.6 billion, while the average amount of funds managed by the investors is US$13.9 billion. The NGOs have an average annual budget of US$800 million.

“Consequently, three-quarters of investors who plan to make low carbon or climate-related investments see barriers in the form of a lack of credible investment opportunities, and a lack of access to quality research,” HSBC said, adding that it expected the situation to improve.

A quarter of the corporate respondents that did not disclose their environmental impact plan at present planned to do so in the coming year, while among the half of firms that said they had strategies to cut their carbon footprint, some 34 per cent planned to disclose it in the next 12 months, the bank added.

More pressure from investors and regulators, as well as incentives such as tax breaks for green financing, are seen by the respondents to be key to encourage greater disclosure and the adoption of green financing strategies.

According to financial market data provider Dealogic about US$76.3 billion of green bonds had been issued globally in the first 11 months of this year, of which China accounted for 42.7 per cent.

Bank of America Merrill Lynch’s analysts have forecast full-year volume would reach US$80 billion to US$90 billion, nearly twice that of last year.

Green bond issuers are obliged to make regular disclosures on the actual environmental impact mitigation outcomes as required by regulators.

In China, the central government’s strong policy push was behind its sharp jump in green bond issuance to US$32.6 billion in this year’s first 11 months, compared with US$1.3 billion in the whole of last year and US$610 million in all of 2014 - the first year such bonds was issued in the nation, according the report and Dealogic.

“China has been a great illustration of supportive government policy, whose astronomical rise to become the world’s largest issuer of this year has solidified its role as a major player within the green bonds space,” the report said.

The People’s Bank of China a year ago released a set of green bond issuance guidelines covering bonds issued by regulated financial entities in the interbank market, such as policy banks and commercial banks.

This was followed by industry policy planner National Development and Reform Commission’s issuance early this year guidelines for green bonds issuance by non-financial companies.

Credit ratings agencies’ initiatives on “greenness ratings” this year also helped lift global issuance growth.

Moody’s introduced its ratings system for green bonds’ late in March, while Standard & Poor’s in September announced plans to launch a new tool for assessing the environmental impact of projects financed by green bonds, as well as another tool for evaluating companies’ environmental, social and governance performance.