Global communications firm Edelman revealed results from the 2020 Edelman Trust Barometer Special Report: Institutional Investors, a study examining investor attitudes and identifies the pivotal issues shaping investment criteria and how companies can build trust with the investment community.
Edelman surveyed 600 institutional investors across six countries for the study, representing over $20 trillion in assets.
According to Edelman, the study found that the COVID-19 pandemic has seen investors’ losing focus on ESG factors, with 79% of respondents reporting that their firms are deprioritizing ESG as an investment criteria, with 77% saying the companies they invest in are doing the same. Investors expect the pandemic effect to be temporary, however, with 96% expecting to increase prioritization of ESG during the recovery.
Lex Suvanto, Edelman Global Managing Director, Financial Communications, said:
“While the global pandemic has forced some companies to temporarily deprioritize ESG efforts, investors clearly believe that a robust ESG strategy has a positive impact on share price and resilience. Boards of Directors especially must get ready for direct engagement from investors on ESG matters, including climate risk, corporate culture and diversity and inclusion. Also, the great majority of investors believe that a multi-stakeholder approach will deliver enhanced returns and say that companies that do this well will have a competitive edge in building trust.”
“These factors are crucial as companies build their businesses, attract talent, manage through crises and ultimately, garner investor trust. It’s very clear from this survey that ESG is at the forefront for investors and a premium is being applied to companies that do it well.”
The events of the past year also appear to have had an impact on investor attitudes regarding the relative materiality and importance of various ESG factors. Social factors in particular have jumped to the forefront of investors’ sustainability considerations. Edelman stated that of the three ESG considerations, social now ranks the highest in importance for respondents, jumping fifteen-points from last year and moving in rank from third to first place.
In terms of the valuation impact of ESG, the study revealed that investors believe ESG outperformers will merit better valuations, with 92% agreeing that companies with strong ESG performance deserve a premium valuation to their share price, and 88% expecting companies that prioritize ESG initiatives to represent better opportunities for long-term returns.
Other key findings from the 2020 Edelman Trust Barometer include:
- Diversity and inclusion: 92% of respondents either strongly or somewhat agree that strong diversity and inclusion (D&I) data have a positive impact on share price. 70% report applying exclusionary screening criteria based on D&I data.
- Engagement and activism: 93% of respondents are more interested in taking an activist approach investing, up from 81% last year; 95% expect to increase engagement with portfolio company boards regarding the impact of climate risk on their companies.
- Multi-stakeholder models: 97% of respondents either strongly or somewhat agree that the multi-stakeholder model of governance is more conducive to delivering long-term financial returns.
- Societal role of business: 92% strongly or somewhat agree that business leaders have an obligation to use their power and influence to advocate for positive change in society.