Majority of Institutional Investors Are Wary of ESG Promises

More than three quarters of US investors have said companies “overstate or exaggerate” ESG progress, according to research from Edelman Financial Communications.

The company’s fifth annual Trust Barometer Special Report: Institutional Investors which surveyed 700 investors found that 72% of investors don’t believe companies will achieve their stated ESG commitments.

Almost 95% of US investors stated they expect companies to establish and communicate a net zero climate plan, although 92% also had concerns that companies aren’t executing on those promises.

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.”

Last week, Ernst and Young’s 2021 Global Alternative Fund Survey found that the growing importance of ESG and diversity equity inclusion consideration will transform the fund industry for years to come.

According to the survey, which gathered the views of both alternative funds managers and institutional investors, 75% revealed their scrutiny of managers’ ESG policies had increase over the past two-three years.

In addition, four out of five investors said climate risk was the primary ESG factor in their investment decision-making, while the majority indicated it was one of the areas of increased focus this year.

Recently, firms including Fifth Third Bank launched a $500 million green bond, while BlackRock enhanced its climate ETF range.