U.K. lender HSBC on Tuesday launched a new reporting service designed to give institutional investors and their asset managers independent measurements of the environmental, social and governance performance of their large holdings.
The tool will help asset managers and major asset owners like insurance companies, pension funds and sovereign wealth funds keep track of the ESG ratings associated with their investments. In turn, the reporting platform allows these institutions to meet rising public demand for transparency regarding sustainable portfolio design, HSBC said.
“This reporting service will enable our securities services clients to gain meaningful insights into ESG aspects of their portfolios using independent scores and ratings,” said Chris Johnson, HSBC director of market data.
The service includes a monthly reporting dashboard with portfolio analysis using ESG scores and carbon emissions data, according to the bank. The scores will come from independent ESG rating providers MSCI, Sustainalytics and Vigeo Eiris and can be applied both to specialist ESG and non-ESG investment portfolios.
HSBC said the dashboard will add value for both investors and asset managers. Owners can use it to discuss the ESG dimensions of their large holdings with their managers, while managers can use its range of ESG scores and ratings as a point of comparison for their own ESG research.
HSBC rolls out its reporting service as the demand for socially responsible investment grows, particularly among younger people. A June study by a Bank of New York Mellon subsidiary found younger Americans prioritizing sustainability to a greater extent than their older counterparts, with nearly 43% of 18- to 39-year-olds in favor of fund managers actively engaging unsustainable companies.
The younger generation was also found to support sustainable investing options in their retirement pension plans. Of the 53% of respondents who knew they had a sustainable investment option and chose to use it, millennials were five times more likely than baby boomers to do so.
Major asset owners are weighing ESG factors in their investment processes as well. A Morgan Stanley survey of 110 public and corporate global pensions, endowments, foundations, sovereign wealth entities and insurance companies revealed that over 80% of the respondents currently incorporate ESG factors in their investment decisions. 78% said they viewed sustainable investing as a risk mitigation strategy.
Questions linger about the link between profitability and ESG performance. MSCI cautioned investors not to be hasty in their sustainability research, noting how hard it can be to pinpoint the specific criteria driving an asset’s financial performance.
“There are many ways to construct a company ESG score, involving different combinations of financial and nonfinancial inputs,” MSCI said. “Determining the most influential criteria on firm performance may be overlooked in the rush to ‘do some ESG.’”