Global communications firm Edelman revealed results from the 2021 Edelman Trust Barometer Special Report: Institutional Investors report, based on its annual survey into the major issues shaping investor’s investment criteria, and examining how companies can build trust with the investment community. One of the key findings of the report was a lack of trust by investors into companies’ ESG commitments and reporting.
For the study, Edelman surveyed 700 institutional investors, including financial analysts, chief investment officers and portfolio managers across the U.S., Canada, U.K., Germany, the Netherlands, the Middle East and Japan. The company reported on the findings from the U.S. findings from the survey.
Edelman stated that the study indicated that investors now subject ESG to the same scrutiny as operational and financial considerations. This represents a change from last year’s survey, which found that the COVID-19 pandemic had seen investors’ losing focus on ESG factors, with 79% of respondents reporting last year that their firms were deprioritizing ESG as an investment criteria.
While investors increasingly focus on ESG issues, however, most do not trust the sustainability goals or reporting from companies. 86% of respondents in the survey reported that they believe companies frequently overstate or exaggerate their ESG progress when disclosing results, and 72% said that they don’t believe companies will meet their ESG commitments. Similarly, while 94% of investors reported that they expect companies to communicate a net zero plan, 92% expressed concern that companies are not effectively executing on these commitments.
As a result, nearly all of the surveyed investors (94%) expect a rise in litigation due to companies not delivering on ESG pledges.
The survey also indicated an increase in interest by the investors in activism and engagement. 95% of investors reported that they are interested in taking an activist approach to investing, up from 93% last year, and 81% the prior year. More than three quarters of investors expect to engage companies on environmental issues including supply chain impact, operational eco efficiency and greenhouse gas emissions, and 81% said that they are likely to engage on board structure.
Lex Suvanto, managing partner and CEO of Edelman Financial Communications, said:
“Investor priorities and expectations are changing rapidly and companies that do not keep up will struggle to win trust. Our research reveals that investors do not trust company ESG disclosures and do not trust companies to deliver on ESG promises. At the same time, investors now see employee activism as a sign of a healthy corporate culture. These are disruptive forces across the investment community that corporate boards and leaders must embrace to ensure competitive cost of capital and fair valuations.”