ABN AMRO ESG Investor Survey 2H22 Preview

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ABN AMRO has conducted a survey with dedicated ESG investors in order to better understand their dynamics, investment behaviour, preferences and screening criteria. The survey had a total of 39 respondents, with a good diversification in terms of regions. The majority of the investors seemed to be from asset managers, which does seems to be aligned with the fact that also the majority of dedicated ESG bond funds are managed by these type of investors. Also 64% of the respondents are portfolio managers, while 20% are ESG analysts / strategists.

Most of the investors rely now on alignment with the EU Taxonomy to assess ESG instruments

As shown in the graphs below, when investors were asked to rank their preferred standard used when assessing ESG instruments, the majority of investors chose the EU Taxonomy and/or the EU Green Bond Standard (GBS) as the most relevant one. This indicates a clear shift away from prioritizing a market-driven standard such as the ICMA Green Bond Principles, likely also driven by the fact that upcoming regulation will require investors to disclose the proportion of their portfolio that aligns with the EU Taxonomy.

Interestingly as well, the investors that have chosen the EU Taxonomy as their preferred standard, are also mostly investors with either a “buy and hold” investment strategy, or a passive one. This indicates that investors who clearly prioritize the ESG profile of a bond/issuer are also the ones who put more weight into transparency in terms of alignment with the EU Taxonomy.

A closer look at the results also shows us that the Climate Bond Initiative (CBI) certification ranks on average as the third preferred standard by investors, though none chose it as the most relevant one. It therefore reinforces the idea that CBI is a nice “addition” for investor screening, but should not be replaced by other relevant standards such as the EU Taxonomy or the ICMA Green Bond Principles.

The ICMA Green Bond Principles has also been on average chosen as the second most relevant standard used by ESG investors, but still 36% have chosen it to be the more relevant that the EU Taxonomy, for example.

The ESG strategy and ESG profile of an issuer are the most important criteria when analysing investments into ESG instruments

72% of the investors that responded to our survey have indicated that they most commonly evaluate the ESG risk rating of the issuer and/or the its ESG strategy when assessing investments in ESG bonds. This is an interesting shift, as in the past, a higher emphasis was usually put into the use of proceeds of the ESG bond. Investors have therefore started to have a more holistic view of the issuance, by starting to assess also how the ESG bond fits within the issuer’s profile and strategy. Our most recent results seem to indicate that one could even argue that the issuer’s ESG profile is deemed as more important than the bond’s use of proceeds or KPI when determining investment by ESG investors.

Also a small minority of respondents (26%) indicate that they look at the issuer’s decarbonization strategy when evaluating investments. For that, the most relevant standard used is the Science-Based Target initiative (SBTi). Also 40% of the investors have indicated that a company’s reporting quality and transparency are also key for this analysis. Investors also mention a company’s carbon footprint pathway (both historical and future), including decarbonization milestones, to be relevant for assessment.

SustInvestors seem to encourage issuers in transition to make use of ESG bonds

When asked which instrument a company in transition should make use of when coming to the market, the vast majority of investors (85%) has recommended it to be an ESG bond (see graph on the next page). Only 15% has indicated that a company with a clear transition strategy should make use of plain vanilla bonds. Investors seem therefore keen to participate in the transition pathway of issuers and encourage those issuers to issue ESG bonds.

SustainWhen looking into specifically which ESG bond was advised, 49% of the investors have indicated that the most appropriate one for issuance would be a Sustainability-Linked Bond (SLB). 36% of the respondents, however, would prefer the company to still use a traditional “use of proceeds” ESG bond, and perceive therefore perhaps this one to be more impactful in this case.

This article is part of the Sustainaweekly of 19 September 2022