Approximately 60% of analysts estimated that the ESG credentials promoted by the companies that they cover are not backed up by their actions, although companies are becoming more responsive on ESG issues, as companies increasingly tie sustainability factors to remuneration and assign board-level oversight to ESG, according to a new survey by investment manager Fidelity International.
For the study, the “2023 Fidelity International ESG Analyst Survey,” Fidelity surveyed 123 of its in-house analyst from across the firm’s Equities, Fixed Income, Private Credit, and Sustainable Investing teams, aggregating bottom-up information from approximately 15,000 company interactions.
The survey indicated that while companies do appear to be increasingly embedding ESG considerations in their activities and plans, many are not yet on track to hit their sustainability goals and more appear to be overstating ESG claims relative to their actions.
While most developed-world multinationals have now committed to net zero targets, for example, fewer than 60% are on track to cut emissions to net zero by 2050, according to the survey, which found that only 57% are currently spending enough to hit net zero by 2050, with European companies in the lead at 69%, and North American companies at 53%.
Analysts’ estimates of companies that will succeed in achieving net zero by 2030 have declined slightly since last year, with the analysts now forecasting 24% of their companies will hit this goal, compared to 25% last year, with sharper declines in Europe (25% this year vs 31% last year) and Japan (27% this year vs 31% last year), while North America improved to 23% from 20% and China to 29% from 23%.
The decline comes as companies face stresses caused by weak global economic conditions, placing pressure on them to focus on more immediate results instead of longer-term sustainability issues.
Fidelity International China property sector analyst Ming Gong said:
“Most of my companies are either in default or deeply stressed. ESG has been low on their priorities and will very likely remain so in the next 12 months.”
One of the key factors holding back progress and investment towards hitting companies’ climate goals is a gap in technology. Mining and commodities analyst Laura Stafford said:
“In many cases the technology is not yet there. For those targeting net zero by 2050 they still don’t have a clear roadmap of how to get there so it’s impossible to say how much capital will even be needed.”
While companies appear to not yet be on track to hit their climate goals, the survey did find more of a focus on ESG at many companies, with 73% of analysts saying that their companies are responsive on ESG issues, more than 50% reporting that management remuneration is now linked to emission targets, and more than 60% of companies now having board-level oversight of sustainability.
Despite this, however, the survey indicated that more companies may be overstating their ESG claims, with nearly 60% of analysts responding that their companies promote either “moderately” or “significantly” better ESG credentials than their actions justify. This finding was particularly pronounced in the Energy sector, where only 17% said that their companies’ actions at least match efforts to promote ESG credentials.
Jenn-Hui Tan, Global Head of Stewardship and Sustainable Investing at Fidelity International, said:
“Our ESG Analyst Survey asks whether companies’ net zero plans are sufficient. The answer is: not yet and a greater collective effort is needed. Further funding, technological innovation and regulation are just some of the areas identified if we are to close the gap between ambition and reality. But corporates cannot do it alone. Governments, like policy decision makers have a key role to play in creating an enabling environment for the transition, as does the financial sector through investor engagement, shareholder action and asset allocation.”