- Sustainable finance reached record growth last year and is poised for continued growth in 2022, with major financial institutions making renewed efforts towards their ESG-related activities as pressure from global regulatory bodies mount with rising climate change and corporate governance concerns.
- Our media analysis found that green bonds that are specifically designed to support climate projects dominate the ESG investing conversation, while financial services companies like BlackRock, JPMorgan and Goldman Sachs are starting to position themselves as sustainable leaders.
- We suggest that PR and comms professionals should use data to identify white spaces in the ESG conversation and become a thought leader in areas that aren’t saturated yet, while getting ready for emerging accusations of ESG-washing.
The last time we analysed the media debate around sustainable finance was in 2019. Back then, the financial services industry was beefing up its sustainability credentials in order to catch up and make its voice heard in the cacophony of ever greener campaigns coming from a variety of industries, from fashion and food to Big Oil and automobiles. Sustainable investing was still viewed as an outlier, something that interested a select few investors.
But throughout the last few years, the importance of environmental, social and governance (ESG) matters proved to be even greater than many had expected, with ESG becoming a key area of focus for a range of stakeholders, particularly in the boardroom. Governments, corporations and the financial community are upping the pace when it comes to supporting a sustainable and environmentally-friendly recovery from the pandemic, taking advantage of what the World Economic Forum sees as a “rare but narrow window of opportunity” to reset.
In fact, total ESG debt issuance reached a record high in 2021 and is poised for continued growth in 2022. It’s starting to change in the communications world too – evidenced by recently created ESG divisions at various consultancy groups, such as Edelman’s recent hire of former MP Chuka Umunna as executive director and head of its ESG consultancy arm.
The growth of the ESG investment philosophy builds on the older Socially Responsible Investment (SRI) movement, which is based on ethical considerations such as not investing in alcohol, tobacco or firearms. But unlike SRI, ESG investing goes beyond its social purpose and presumes that it has actual financial relevance, even though it takes into account aspects which traditionally are not part of financial analysis. For investors, ESG credentials communicate corporate values and strong reputation relating to issues which are more and more often in the public eye, which in turn can improve the performance of both active and passive risk-factor portfolios.
ESG investing really took off around 2013 and 2014 when a couple of studies found that good corporate sustainability performance correlates with good financial results. The growing awareness of such academic research has been a decisive factor for the encouragement of more and more investors to practice ESG integration into the analysis of listed equity investments, making it the most widespread responsible investment practice in the market today.
Another important factor for the rapid growth of ESG investments are millennials, whose investment preferences always circle around their personal values: a survey by First State Investments found that more than 80% of millennials are interested or very interested in sustainable investing.
Stronger media focus
Analysing the debate’s engagement and content over time, we found that 2021 saw much more engagement and content around sustainable finance than 2020 – meaning that awareness of the issue has been steadily growing:
One of the peaks in coverage was in June, when investors poured record sums to bond funds specialising in ESG issues in the first five months of 2021, even as concerns over potential “greenwashing” have escalated. In total, sales of all ESG bond funds hit $54bn in the year to the end of May, compared with almost $68bn for all of 2020. Assets under management in the products increased 14 per cent to $374bn between January and May, while they have almost tripled in three years.
There was another coverage peak in October, when researchers warned that climate finance needs to rise sharply to $5 trillion a year globally by 2030 to fund measures to fight climate change, as transformation across economies is too slow to meet international temperature goals. The researchers called for a significant ramping up of investments to fight climate change, especially for developing countries.
Of course, the biggest peak in content and engagement was in November, when COP26 took place and when banks, insurers and investors with US$130 trillion at their disposal pledged to put limiting climate change at the centre of their work. UN climate envoy Mark Carney, who assembled the Glasgow Financial Alliance for Net Zero (GFANZ), put the figure at US$100 trillion over the next three decades and said the finance industry must find ways to raise private money to take the effort far beyond what states alone can do.
“The money is here — but that money needs net zero-aligned projects and (then) there’s a way to turn this into a very, very powerful virtuous circle — and that’s the challenge,” the former Bank of England governor told the summit. Carney’s comments reflected a problem often cited by investors who, in the face of a myriad of climate-related risks, need to be sure that they are being accounted for in a transparent and preferably standardised way around the globe.
Green bonds dominate the media
The two main financial instruments in sustainable finance are equity and debt. Analysing 3,166 English-language articles published in top-tier outlets in the last 12 months, we found that debt financing in the forms of loans and bonds was the most widely discussed aspect of sustainable finance.
In particular, green bonds – bonds specifically designed to support climate or environment-related projects – emerged as the top-trending sustainable finance instrument:
Many media reports remarked that green bonds are soaring in popularity as the world aims to recover from COVID-19, with their growth beating even the most optimistic expectations. Their acceleration was most pronounced in Europe, even without counting in the NextGenerationEU stimulus package, which will run from mid-2021 to 2027 and see around €250 billion of green bonds issued.
Green bond issuance has surged fivefold in the bloc over the last five years, accounting for more than half of global issuance in 2020, with 49% denominated in euros. Becease of the media’s focus on the EU market, a one of the top-trending news in our research sample was the European Commission announcing a plan to introduce a European Green Bond Standard (EGBS) to strengthen oversight of the burgeoning sector and funnel money to projects and programmes that help it meet its climate goals.
However, critics of green bonds focus on the slipperiness of corporate positions on climate change: whatever restrictions green capital place on borrowers, nothing prevents them from using other funding sources for projects that do not meet green bond criteria. Simply rewarding some bonds or stocks with pricier valuations does not necessarily bring about wholesale positive action on climate change.
Other critics cited in the media pointed out that a green bond boom may be emerging to match the dotcom and sub-prime mortgage bubbles that burst spectacularly earlier this century. Some estimates suggest that ESG assets rose by nearly a third between 2016 and 2020 to $35 trillion, the Bank for International Settlements (BIS) said.
The scale of growth in ESG funds is “comparable [with] the private label mortgage-backed securities” before the 2008 financial crisis, a similarity the BIS called “noteworthy”. The BIS added that “ESG assets’ valuations may be stretched” at the moment and said the “greenium [price premium for green assets] could signal market overheating”.
The second most widely covered financial instrument was climate finance funds – local, national or transnational financing drawn from public, private and alternative sources of financing that seeks to support mitigation and adaptation actions that will address climate change. For example, BlackRock, the world’s biggest asset manager, made headlines when it raised over $250 million for its climate finance fund to invest in select countries in Asia, Latin America, and Africa. Another climate finance fund that made headlines was The Bezos Earth Fund, which recently granted $5.5 million to BlocPower, a company that focuses on commercial and residential building energy efficiency.
Other financial instruments, such as sustainability bonds, where funds are committed to a mix of social and green impact projects, or social bonds, in which the funds are committed to social impact projects like investing in low-cost housing, didn’t receive as much media attention.
The larger popularity of green bonds (specifically designed to support climate projects) in comparison with instruments that include social apects goes to show that the ESG conversation focuses primarily on environmental issues – there’s plenty of E and not enough of S and G.
Banks in the front row
We used Commetric’s proprietary ‘media conversation impact score‘ metric to identify the organisations with the biggest impact on the media discussion around sustainable finance in our research sample of 3,166 English-language articles.
We determine an organisation’s media impact in the context of a topic by looking at its media influence score calculated in terms of coverage by high-profile media outlets, topic relevancy score measuring its contextual relevance, and media visibility as measured by the number of mentions.
We found that BlackRock, one of the early adopters of the ESG trend, was the most influential company in the debate:
BlackRock‘s public relations strategy has long been revolving around positioning itself as a global leader in sustainable investing. Commentators noted that the asset manager tries to exploit two of the dominant themes in the global investment industry — the growth of low-cost, passive ETFs and the preferences of investors, particularly millennials, for making socially conscious investment decisions.
BlackRock first got in the ESG spotlight in 2019 for becoming the first asset manager to publish ESG ratings of companies across its entire iShares investment portfolio. It also published a popular report on climate change, claiming that it’s a risk investors can’t ignore. The asset manager recently made headlines when it secured the largest-ever ETF launch – the BlackRock US Carbon Transition Readiness fund began trading in April last year, eclipsing the previous largest ETF listing, the iShares ESG MSCI USA Leaders fund, which debuted with $850m in May 2019.
However, BlackRock also got some bad press when it was accused of inconsistency in its ESG agenda – the investment firm was found to have links to an Indonesian palm oil company, which once again raised concerns around possible blind spots in the ESG investment process.
The second most influential organisation in the debate was a central bank – the Bank of England (BoE), which said in January that banks in Britain should be “ambitious” in properly quantifying risks from climate change or face intervention by regulators if they fall short. Banks should also pay particular attention to how they incorporate climate-related risks into business strategies, decision-making and risk-taking, the BoE said in a letter to bank CEOs about its supervisory priorities for the coming year.
One of BlackRock’s main competitors, JPMorgan Chase & Co, earned its influence in the debate as it created a new private equity team to focus on sustainable investments, the bank’s latest move to align its activities with its climate-change commitments. With an investment of up to $150 million, the team targets growth-stage private companies that build solutions related to climate adaptation and resource efficiency for various industries.
Meanwhile, HSBC group chief executive Noel Quinn said the bank has helped clients issue $170 billion worth of green bonds this year, with proceeds from green bonds typically used on projects to cut greenhouse gas emissions, adapt to climate change, increase energy efficiency or expand the use of renewable energy.
Goldman Sachs, on the other hand, completed the €1.7 billion acquisition of Netherlands-based sustainable investment-focused asset manager NN Investment Partners (NN IP) from financial services company NN Group N.V. According to Goldman, NN IP has integrated ESG criteria into approximately 90% of its assets under supervision, and the firm aims to leverage NN IP’s expertise in order to deepen its own ESG integration and address its clients’ sustainable investing priorities.
Goldman also launched a green finance working group with the International Finance Forum (IFF), a Beijing-headquartered think tank. The working group will facilitate dialogue on climate action among senior executives from global corporations and researchers from leading institutions.
The second largest U.S. bank after JPMorgan, Bank of America, also gained prominence by saying it will deploy $1 trillion for its environmental business initiative to push for green finance by 2030, expanding on the $300 billion it had announced for the same project in 2019. The initiative will help the bank’s push for a greener economy through lending, capital raising, advisory and investment services to help low-carbon and other sustainable businesses, Bank of America said. In February, Bank of America said here it would target net-zero greenhouse gas emissions before 2050.
Apart from banks, a a couple of oil giants also emerged as influential in the debate with their involvement in sustainable finance. For example, Royal Dutch Shell called on investors to vote for its strategy to shift the business towards cleaner energy sources, despite warnings that the plan does not go far enough to meet the Paris climate agreement goals. Ben van Beurden, Shell’s chief executive, said the company was asking shareholders to vote for an energy transition strategy “designed to bring our energy products, our services, and our investments in line with the temperature goal of the Paris agreement and the global drive to combat the climate crisis.
Meanwhile, investors rejected the responses of US oil giants to climate change in May last year, installing activist board members at ExxonMobil and directing Chevron to deepen emissions cuts. The dual decisions at the two biggest US oil giants’ annual meetings were perceived as clear evidence that addressing climate change has moved from being an environmentalist cause to one championed by mainstream investors. At ExxonMobil, two board nominees from activist group Engine No. 1 won enough votes to secure board seats, while at Chevron, a majority of investors approved an activist proposal calling on the company to reduce “scope 3” emissions, which encompass energy products.
Spokespeople warn of unclear reporting
We also found that Mark Carney, an economist and banker who served as the governor of the Bank of Canada from 2008 to 2013 and the governor of the Bank of England from 2013 to 2020, emerged as the most influential spokesperson in the debate:
Carney, who also serves as an UN special envoy on climate action and finance and head of impact investing at Brookfield Asset Management, was cited as saying that investors are ‘lining up’ money for climate action but are held back by unclear reporting.
Speaking at Credit Suisse’s Sustainability Week, he noted G7 countries had recently stepped up at the Cornwall summit by committing to mandatory climate reporting, under the Taskforce for Climate-related Financial Disclosure (TCFD), but noted the “impatience” investors have in wanting to invest in climate change solutions.
“The message to the G7 and policymakers is that the private sector is lining up to put money to work – to amplify that we need to have credible and clear climate policies. That’s what drives investments. This will create that virtuous circle between the finance sector and the real economy,” Carney said.
The most influential investment banking exec was BlackRock CEO Larry Fink, who called for governments to develop a stronger long-term climate finance plan to unlock the private capital needed to fund the transition to a low-carbon economy. Speaking to The Venice International Conference on Climate at a meeting of G20 Finance Ministers, he said without such a plan, current efforts, including on corporate sustainability disclosures, risked being “nothing more than window dressing”.
However, a former BlackRock exec – Tariq Fancy, former Blackrock CIO and now CEO of Rumie Initiative, became influential for criticising Larry Fink’s recent comments, saying that sustainable investing is mostly marketing and PR.
JPMorgan CEO Jamie Dimon, who has spent the last year or so positioning the bank at the center of the increasingly ascendant notion of stakeholder capitalism, said that the solution to climate change “is not as simple as walking away from fossil fuels” because some sectors do not have affordable, low-carbon energy sources to replace oil and natural gas.
Oil and gas execs also got media exposure – for example, Exxon’s chief executive Darren Woods has stayed out of public view since the Engine No 1 campaign, but in a statement to the Financial Times following the vote he highlighted that many of the company’s 3m shareholders “supported the work that we’re doing” on climate and capital spending, before acknowledging a “desire to further these efforts”. Chevron Chairman and CEO Mike Wirth discussed the oil company’s lower-carbon investments in renewable natural gas and hydrogen: “We’ve concluded that management in our company can’t create value for shareholders by going into wind and solar”.
The most influential public official was US treasury secretary Janet Yellen, who said she will push the major multilateral development banks to “increase their climate ambition” and accelerate timelines to support the Paris Agreement on carbon emissions reductions. Meanwhile, John Kerry, the U.S. special envoy for climate, held discussions with leaders in the financial sector about how to mobilise capital for green technology and clean energy, as President Joe Biden aims to the put the nation’s economy on course for net-zero emissions by 2050.
How can PR advance the sustainable finance agenda?
In recent years, as ESG has become more mainstream, investors have appreciated that ESG communications, when practiced effectively, can create significant value. Here are a few tips on how PR and comms teams could advance sustainable finance:
- Add some S and G to the E. As we saw from our analysis, the ESG discussion focuses mainly on the E at the expense of the S and G factors. Still, both US and European investors expect substantial growth in S factors. Thus, PR and comms professionals should use data to identify white spaces in the ESG conversation and become a thought leader in areas that aren’t saturated yet. As the ‘people’ impacts of sustainability are rising up the agenda, financial services brands can’t hope to tackle climate change without also addressing the structural inequities that mean some groups – such as, women, BIPOC communities, LGBTQ+ communities and people with disabilities – are disproportionately impacted. Companies need to address the social dimension of global warming, showing that they understand that the most vulnerable people bear the brunt of climate change impacts yet contribute the least to the crisis. As the impacts of climate change mount, millions of vulnerable people face greater challenges in terms of extreme events, health effects, food security, livelihood security, water security, and cultural identity.
- Stay ahead of regulations and focus on actionable ESG insights. PR and comms teams would be well served to stay ahead of potential upcoming increased rules and regulations by proactively reviewing company policies related to environmentalism, human capital management, sustainability, and other ESG topics that are material to your industry. Having a clear ESG position and messaging are now a best practice. At the same time, perhaps the biggest challenge faced by the sustainable finance market is the lack of agreement on and availability of actionable ESG data. The lack of standardisation and paucity of disclosure regulation around the world means that corporate ESG disclosure is voluntary and, in consequence, is uneven and inconsistent. Companies choose what data to report, or whether to report at all. ESG information, disclosed directly by firms and expressed synthetically in ratings, plays a crucial role in ESG investing. On the one hand, it helps investors identify and manage risks and opportunities that standard financial analysis would miss. On the other hand, it helps companies highlight their ongoing ESG policies.
- Be ready for the emerging accusations of ESG-washing. Our analysis shows some early signs of critics accusing certain practices of ESG-washing – the practice of using marketing and PR tactics to overamplify ESG efforts for the purpose of gaining greater favour from consumers and investors. A company may not intentionally set out to “deceive” consumers but may fall victim to jumping on a marketing hype train that oversells a well-intentioned initiative that is not yet viable. To feel confident in your ESG initiatives, first and foremost, it is imperative that the goals set forth are directly relevant to your industry. Consider assembling an internal team around formulating your company ESG policy that correlates with your business imperative. For example, if you are a financial services company, it doesn’t make sense for you to be opining on fossil fuels, it just doesn’t apply the way it would if you were an oil and gas company.