Investors place greater value on ESG performance

New survey shows that investors regard ESG as key tool in making investment decisions

90% of investors attach greater importance to a corporate’s Environmental Social Governance (ESG) performance when it comes to investment and decision-making strategy according to findings of a new survey.

The findings were part of the EY Global Institutional Investors Survey 2021, which examines the perspectives of more than 320 institutional investors from more than 19 countries.

The survey also found that 92% of investors surveyed said that they made investment decisions in the past 12 months based on notion of a “green recovery”. Furthermore, 86% of investors said that a corporate having a strong ESG program and performance would significantly influence an investment analyst’s recommendation.

A large driver behind this shift towards ESG from a few years ago has been the COVID-19 pandemic, with 74% of investors citing the pandemic as a major reason for focusing more on a corporate’s ESG performance. Similarly, 44% of investors said that they have updated and refined their investment risk management processes during the past 18 months.

“It’s clear that the COVID-19 pandemic has spurred investors to place more emphasis on ESG performance. There are positive signs that this is starting to translate into action, although both companies and investors need to take bolder steps to put ESG performance right at the centre of their decision-making”, said Marie-Laure Delarue, EY Global Vice-Chair Assurance.

This news comes at a time of greater focus on climate risk from the financial community, with the formation, at COP26, of the Glasgow Financial Alliance for Net Zero, representing 40% of the world’s capital, which pledged to tackle climate change.

However, such news should be heeded with caution as the same survey showed that only 49% of investors had actually updated their own ESG investment approaches.

The survey identified three significant themes that corporates and investors need to heed.

Firstly, corporates and investors need to assess ESG risk effectively and acknowledge the strong emphasis that stakeholders place on social issues such as diversity and inclusion. Secondly, investors and corporates need to improve their approach to climate scenario analysis. All of which requires, as the third point highlights, better quality non-financial disclosures in a more robust regulatory landscape along with sophisticated data analysis.

Post Date: 08/12/2021

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