(Bloomberg) -- Investor interest in ESG is showing signs of stalling as fund managers instead focus more on tackling an increasingly challenging political and economic climate, according to a survey published by HSBC Holdings Plc.
“Global events continue to distract from long-term sustainability challenges,” analysts led by Wai-Shin Chan, HSBC’s head of ESG research, wrote in the report.
The survey, which looked at responses from 150 firms with a combined $6.7 trillion in assets, revealed “weakened” reasons for monitoring environmental, social and governance risks “across the board.” At the same time, there was also evidence that “sustainability remains partly as an objective across many funds.”
The findings coincide with broader signs of a cooling toward ESG, amid continued backlash fanned by the Republican Party in the US and lackluster returns in key corners of the investment strategy. Against a backdrop of war, energy-supply risks and volatile markets, investors have shown a reluctance to allocate funds to underperforming solar and wind stocks.
“It is difficult to prioritize long-term sustainability in the short term,” the HSBC analysts said. “Time is limited and other issues are more urgent.”
The extent to which ESG considerations were incorporated in investment strategies flat-lined from a year earlier, with a majority of survey respondents saying there was no increase in their understanding of relevant ESG issues.
Respondents, who mainly focused on the US in their survey answers, also pointed to the need for more uniform ESG norms and regulations. Close to 60% said that having a global, firm-wide approach to ESG or sustainability is needed. HSBC said its findings showed that “investors felt that corporates were the part that needed most oversight, but it was in the area of sustainability integrity rather than better disclosures.”
Meanwhile, some of the world’s biggest asset managers including BlackRock Inc., Deutsche Bank AG’s DWS Group and Invesco Ltd. are cutting back on their ESG fund launches, according to data provided by Morningstar Direct. And redemptions from ESG funds continued in the US last quarter, albeit it at a somewhat slower pace, Morningstar data show.
As the ESG label struggles to gain ground, there are signs that investment managers are pursuing elements of the strategy under different names, according to HSBC.
“With fewer in the US explicitly talking about ESG, we see the rise of thematic investing as a compromise,” the analysts said.
Investment managers who incorporate ESG into their strategies said they do so mainly to attract capital, rather than because of regulatory considerations. What’s more, many highlighted water-related concerns as an under-appreciated risk.
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“It has [been] and will be an interesting year when it comes to world events, and sustainability issues may struggle to compete for attention,” the HSBC analysts said.
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