Seventy-four percent of institutional investors say they may divest from companies with poor ESG track records, according to EY’s 2021 Global Institutional Investor Survey. The report surveyed 320 investors across 19 countries. Ninety percent of investors say ESG is more important than before the COVID-19 pandemic while 92% attest to making a decision over the past year owing to the prospective benefits of a “green recovery”.
Investors are also taking steps to establish whether companies can make good on their ESG goals. Some indicators used by investors are the presence of an ESG representative on staff, such as a Chief Sustainability Officer that reports directly to the CEO and executive team, and whether a company has independent assurance for its ESG reporting.
Yet, despite the current focus on ESG, the survey also found that institutional investors have been, relatively, sluggish in enacting concrete changes in how they operate. Only 49% have updated their investment approaches and just 44% have re-tooled their risk management strategies.
Investors are also concerned with the quality of information and ESG reporting transparency of companies in which they consider investing.
Laura Ciobanu, Manager, Climate Change and Sustainability Services, EY Romania: “ESG principles have never been more essential to both institutional investors and the corporate community, and while it is clear that ESG has taken center stage, our study also evidences continuing concerns regarding the transparency and quality of companies’ ESG disclosures, particularly when it comes to materiality and the lack of focus on material issues. Moreover, the collection of such data can present a real challenge, because while many companies have well-documented underlying processes in place for financial data, together with the added assurance of multiple management signoffs, these processes are frequently much more basic when it comes to ESG data. As this data is practically used in formal dialogues with investors, its truthfulness becomes even more important, so corporates should enhance the way they gather, aggregate, and assume management responsibility for their own data.”