ING Research: Climate Action Accelerated by COVID-19

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A new global survey of companies and institutional investors commissioned by ING shows the COVID-19 pandemic as a “white swan” moment, which has accelerated the majority of companies’ sustainable transformation plans. At the same time, investors are demanding more hard environmental targets be put in place by companies. Despite this, ING says companies, investors, and governments must move faster and further in making environmental, social and governance (ESG) progress as the pandemic raises the bar for ambition.

According to the new report, “Now or never: A new bar for sustainability,” 57% of companies say they are accelerating green transformation plans, and 62% will likely tie executive compensation to environmental targets in 2021. Currently, less than one in 10 companies in the survey have linked executive compensation to ESG targets. From the investors surveyed, 74% have increased commitments for portfolio alignments to the goals of the Paris Climate Agreement and 72% are adopting more ambitious targets for sustainability outcomes of ESG investment.

The ING report surveyed executive and senior management respondents about their organization’s ESG priorities, how they are embedding accountability for progress and performance, and the evolving influence of capital markets on sustainable transition. The findings include:

Companies elevate the “S” in ESG, with 50% expecting to issue a social bond in the next 12 months

Employee health and wellbeing (33%) will take precedence for corporates over the next year, even ahead of emissions reduction (30%). Investors cite this as a top ESG priority too, behind only climate and sustainable supply chains. Furthermore, over 80% of companies across each region expect new government sustainability policies to intensify action on improving access to healthcare, significantly more than any other area, including renewable energy projects. Momentum behind social bond issuance and subscription rates is set to continue over the next 12 months with, 50% of corporates likely to issue a social bond in this time frame.

Asia-Pacific (53%) and North American (51%) respondents are more likely to issue a social bond in the next 12 months than European (44%) respondents. Despite short-term momentum on social issues, only 17% of investors would like to see companies making more externally focused social targets a top priority; investors see more ambitious environmental targets as a bigger priority (38%).

62% of companies have effectively integrated ESG information within corporate reporting, but better alignment with investor demands is needed

73% of those that had issued sustainable finance instruments in the past say the process improved their ability to put robust metrics in place and 62% say ESG information is strongly integrated within corporate reporting. However, when it comes to disclosure, there are still misalignments between information being reported by companies and information investors believe is most material. The top challenges for companies trying to improve ESG accountability are the lack of common industry standards and integrating ESG issues with financial targets.

European (45%) companies highlighted the chopping and changing of ESG KPIs as the most significant challenge in improving ESG accountability, in comparison to North America and Asia-Pacific (34% each). 

66% of companies say expansion and innovation in the sustainable finance market improves relevance and accessibility

The industry saw an expansion of different financing instruments, including social bond issuances, with 66% of companies saying the expansion of the sustainable finance market makes it more relevant and accessible for them. Companies cite the strongest appetite to issue social bonds over any other sustainability financing instrument, except for European companies where there is a marginally stronger appetite to issue green bonds over social.  First-time issuers view sustainability-linked financing as a way to test the market and learn from the process, value, and data.

European investors (49%) have by far strongest appetite for sustainability-linked instruments compared to North America (26%) and Asia-Pacific (13%). Investor appetite for transition bonds is reversed with stronger appetite in Asia Pacific (47%) and North American (40%) in comparison to Europe (17%).