Fund managers are shifting their focus to navigating a challenging political and economic climate, showing signs of stalling among investors in ESG according to an HSBC Holdings Plc survey.
“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, covering responses from 150 firms with a combined $6.7 trillion in assets, revealed a decline in the emphasis on environmental, social, and governance (ESG) risks, although sustainability remains a goal for many funds. This trend aligns with broader signs of diminishing enthusiasm for ESG, exacerbated by political backlash, lackluster returns in key investment areas, and ongoing global issues like war and energy risks.
“It is difficult to prioritise long-term sustainability in the short term,” the HSBC analysts said, adding, “Time is limited and other issues are more urgent.”
The survey found no increase in the incorporation of ESG considerations into investment strategies compared to the previous year. Many respondents, particularly from the US, called for more uniform ESG norms and regulations, with nearly 60% advocating for a global approach to ESG or sustainability.
HSBC’s 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.”
Major asset managers like BlackRock Inc., Deutsche Bank AG’s DWS Group, and Invesco Ltd. are reducing their ESG fund launches, and redemptions from ESG funds in the US persisted, albeit at a slower rate, according to data provided by Morningstar Direct. HSBC noted that while the ESG label faces challenges, 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 incorporating ESG do so primarily to attract capital rather than for regulatory reasons, with many highlighting water-related risks as under-recognised. HSBC analysts said, “It has [been] and will be an interesting year when it comes to world events, and sustainability issues may struggle to compete for attention.”