Poor ESG performance might drive divestment by institutional investors, according to an EY global survey that reveals 74% of respondents are now more likely to divest from firms with poor ESG track records.
However, concrete action is still lacking, and there is an urgent need for better quality disclosure from companies, said EY.
The 2021 EY Global Institutional Investor Survey canvasses the views of 320 institutional investors across 19 countries, according to EY.
- 90% of investors say they now attach greater importance to ESG performance in their decision-making than they did before the COVID-19 pandemic
- 92% say they have made decisions over the past 12 months based on the potential benefits of a “green recovery”.
- More than three- quarters (77%) of those surveyed say that, over the next two years, they plan to step-up their analysis of “physical” risks – the impact of climate change on a business’ ability to provide its products and services. This is an increase from 73% in 2020.
- 80% will do more to evaluate “transition” risks —which are the market impacts that might result from the move to a low carbon economy — up from 71% in 2020.
- Respondents say they look at several factors when making investment decisions, including whether there is an ESG representative — such as a chief sustainability officer — reporting directly into the CEO and executive team (53%); whether organisational culture is aligned with ESG goals (52%); and whether the company has independent assurance for its ESG reporting (48%).
- However, only 42% worry about whether boards have oversight of ESG performance, or whether executive compensation is tied to it.
- Institutional investors have been relatively slow to make concrete changes to the way they operate.
- Just 49% have taken action to update their investment approaches and only 44% have revamped their risk management strategies.
- Only 44% believe that they have a “highly mature” approach in relation to climate risk.
- Many investors are concerned about the quality and transparency of ESG reporting on the part of the companies that they consider.
- Half of those surveyed (50%) say they don’t believe companies are reporting adequately on financial material issues. That is a marked increase from 37% in 2020.
- However, there is a clear hope that the introduction of global standards will help on this front and 89% of the investors surveyed say they want these standards to become mandatory.