ESG Strategy Varies by Region, Disclosure Still Needs Progress

HSBC report also finds ESG investing more common in Europe than Asia.

Although more than 60% of investors and nearly 50% of issuers worldwide have an environment, social, and governance (ESG) plan in place, these rates vary widely based on region, according to a report from HSBC, which also found that disclosure of ESG strategy and policy still has a long way to go.

According to HSBC’s research, ESG financial instrument penetration among issuers is 79% worldwide, however, there is a significant variance across regions. For example, it found that Hong Kong reported a penetration of 59.8%, while the UK had a penetration of 92.9%. On the investor side, penetration was lower across the board, with 65.6% involved in ESG investing worldwide. As with financial instrument penetration, there was also a wide disparity based on geography, with Asia recording the lowest level of penetration at 43.3%, including just 38.4% of Chinese investors reporting ESG investments.

The report found a much higher proportion of issuers involved in creating the ESG instruments than investors who invest in them. This gap is most notable in China, where 90.5% of issuers are using ESG financing, compared to only 38.4% of investors who have ESG investments. However, the gap is far narrower in Europe where 92.4% of issuers have ESG financing with 89.2% of investors involved.

HSBC said investors cited a lack of opportunity as the main reason they are not increasing their ESG investments, while issuers said they are not increasing ESG financing because of low investor demand.

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The report also said that “disclosure of ESG strategy and policy is very much an ongoing ‘work in progress,’” adding that 52.4% of issuers and 38.6% of investors worldwide do not even have an ESG Strategy.

“In terms of ESG policy, we see a less transparent approach with 68.8% of issuers and 66.7% of investors not disclosing their policies,” said the report. “There are exceptions led by Europe, pension funds, and sovereign wealth funds in the UK and the Gulf States, but even in these markets there is a high level of overall non-disclosure.”

HSBC expects ESG investing to continue to increase globally, and said that although less than 10% of investors currently have dedicated ESG investment structures, they forecast this to grow by 20% over the next 12 months.

It added that regulation, financial returns, and shareholder pressure, or risk of negative publicity, are the main drivers that will help push the industry to work toward full disclosure and transparency.

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CalPERS Names Meng New CIO

Start date has not yet been determined.

Ben Meng has been selected as the new chief investment officer for the California Public Employees’ Retirement System (CalPERS), the system’s CEO Marcie Frost announced Monday in a press release.

Meng, 48, had been serving as the deputy CIO at the State Exchange of Foreign Administration in China, which manages the country’s foreign exchange reserves. He is a US citizen born in China.

Meng had previously worked at CalPERS in the investment office. His last role was investment director of asset allocation for the $360 billion pension system. He left CalPERS in 2015 after a seven-year tenure. He has worked for the Chinese government agency for the last three years.

His start date has not been determined, the release says.

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Meng replaces CIO Ted Eliopoulos, who announced he is leaving by the end of the year because of family issues.

His appointment comes at a critical time for CalPERS, the largest US pension system. The system is only 71% funded and its own investment staff and consultants say the next decade will bring lower returns of 6.2% on average, below the 7% CalPERS expects to earn on annualized basis.

CalPERS is also hoping to start a $20 billion direct private equity organization, the first of its kind by a US public pension plan, by the beginning of 2019.  

Meng was not at the CalPERS investment committee meeting on Monday. Eliopoulos said he was in China and would travel to the US as soon as possible to meet CalPERS staff and board members.

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