The "S" in ESG | HSBC Australia
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Rapid evolution of sustainable finance is providing companies with more options to implement their sustainability strategies and social initiatives, says HSBC Australia’s Amanda Taylor.

Companies are increasingly recognising that sustainable financing can help establish company commitments and policies on sustainability and drive accountability and delivery of existing commitments. "Treasury and finance teams in partnerships with sustainability teams, HR and business are working together to constructively challenge business operations, policies and areas of focus to embed sustainability into everyday business practices and operations, and also deliver a more resilient company and workforce." says HSBC Australia Head of Sustainable Finance Amanda Taylor.

A range of sustainable finance products are available. Sustainability-linked loans link the interest rate on the loan to the achievement of a company’s sustainability performance targets. Green loans are available for the financing or refinancing of eligible green projects. There are similar debt products, such as green, social and sustainability bonds.

To achieve real change through sustainable finance, companies need to develop robust frameworks and meaningful measures of success that can be independently verified to ensure the confidence of all stakeholders in the outcomes. “The momentum in ESG commitments and financing needs to be complemented by robust reporting and disclosures, governance and data integrity,” says Taylor.

To ensure financial outcomes are aligned with ESG outcomes, stakeholders and capital investors will look to ensure accuracy and robustness of any commitments. Measurement of performance is paramount.

Amanda Taylor | Head of Sustainable Finance, HSBC Australia

Social issues matter

The “E” in ESG dominates most discussions about the need to improve the sustainability of economies and communities, but there is a growing realisation the “S” is important, too. About 435 shareholder resolutions on ESG issues were filed for the 2021 proxy season in the US and one-third related to social issues such as diversity and human rights, according to Proxy Season Review 2021. This is around 20 per cent higher than in 2020.

An organisation’s stance on ESG is also an increasingly important factor in its ability to attract and retain staff as employees more often want to work for a business with similar values to their own. “Sustainability in its truest sense is about more than the environment, even though the extent of the climate emergency cannot be underestimated,” says Taylor.

There is widespread recognition these kinds of initiatives are not just about a ‘feel-good’ factor. Any number of studies point to the business benefits of improvements in an organisation’s gender diversity or the mental wellbeing of its staff, for example.

Amanda Taylor | Head of Sustainable Finance, HSBC Australia

For instance, a 2019 McKinsey analysis found that companies in the top quartile for executive gender diversity were 25 per cent more likely to have above-average profitability than their peers in the fourth quartile. And a Productivity Commission report has found that mental ill-health and suicide in Australia cost between $12–$39 billion in lower economic participation and lost productivity in 2018–19 alone.

Changing mindsets

This shift in sentiment is also helping drive a change in company mindsets. HSBC’s annual Sustainable Financing and Investing survey in 2021 found that more than half of the 1000 capital markets issuers who responded to the survey agreed or strongly agreed their investors want them to work harder on issues such as gender and ethnic equality.

Australian companies are also paying more attention to social issues in their financing arrangements. For example, property investor ISPT* restructured the $2.8 billion bank facilities of its flagship fund to include financial incentives that will help not only reduce its environmental impact but also protect the labour rights of cleaners who work in its properties.

HSBC can help you navigate the sustainable finance world by delivering consistent solutions and insights to support your business needs — enabling you to make the long-term decisions that are good for your business, as well as good for the environment.

As appeared in Company Director Magazine May issue 2022.

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