The 2024 survey demonstrates that external pressure is only ramping up in this area. Asked to rank the significance of various environmental, social and governance (ESG) risk considerations when making a debt investment, regulatory overtook reputational risk as the most important consideration in the 2024 survey (see chart 1). All risks scored in the 7-9 out of 10 range, but there is a marginal uplift in concern about reputational and product risk in the 2024 survey.

It is therefore no surprise that compliance with domestic regulation and policy is now the number one priority for investors when it comes to their demands of issuers’ sustainability strategies (see chart 2).

What seems to have happened is the focus on regulatory compliance has remained a top priority while some other aspects have dropped away – in other words, a tightening of focus but enhancement of the level and type of reporting required to alleviate risk. Demand for social factors to be included in sustainability strategies has declined noticeably since 2021, for instance, while even net-zero transition is less important as a target.

The trend seems to be for investors to be more specific in their reporting demands but also to require multiple types of information to be provided by issuers. There has been steady growth in the proportion of investors that want impact reporting at security-specific level, for instance – with the outcome that more than half the investors surveyed want to see all three types of reporting tested in the survey (see charts 3 and 4).

In line with the eased focus on net-zero transition specifically, investors also seem – at the margin – to be evolving their approach from a tight focus on emissions to this being just one component of sustainability analysis. Scope-one emissions were “central” to the ESG analysis of around 60 per cent of investors in 2022 and 2023 but have fallen back to a central focus for just 47 per cent of survey respondents this year (see chart 5).

Scope-three emissions reporting, meanwhile, appears still to dwell well and truly in the too hard basket for investors – or at least the buy side is prepared to accept that it is too hard for issuers. Just 6 per cent of investors say scope-three is central to their processes though more than 60 per cent say it is a component of them.

Outside issuers’ own reporting, investors suggest the quality and relevance of ESG analysis they are getting from rating agencies is solid but still lags the agencies’ mainstream credit analysis. Asked to rate the importance of various forms of rating agency analysis, investors score ESG information between 5.7 and 6.1 out of 10 depending on sector – some way behind the 7.1-8.2 out of 10 for “general credit information”, for instance (see chart 6).

Though scoring does not suggest a great deal of value is placed on credit agencies’ ESG work by investors, its quality has improved marginally in investors’ opinion. In 2024, 10 per cent of respondents said ESG analysis was of sufficient range and quality – still low, but up from 2 per cent in 2023 (see charts 7 and 8). The importance of adequate reporting is made clear by investors’ expected timeline for issuers’ sustainability plans. Nearly half of survey respondents say they want issuers’ strategies to have 0-5 year horizons, though almost as many continue to report that they have no timeline preference provided plans are rigorous (see chart 9).

As implied by the preference for reporting types, investors lean toward issuer-level credentials over those of specific debt instruments as the most important aspect of ESG integration for borrowers (see chart 10). On the other hand, when it comes to debt finance specifically, there is a more or less even split between preferences for issuers’ overall credentials versus bond-level reporting (see chart 11).