Investors agree that profitable companies have a greater responsibility to address ESG issues than companies that are struggling
Large majority of investors agree that companies that prioritize ESG initiatives represent better opportunities for long-term returns than those that do not
Investors say companies that excel in ESG merit a premium valuation
Diversity and inclusion (D&I) disclosures impact investor trust and share price
More investors want executive compensation tied to ESG performance
Investors more prone to take an activist approach; Most companies still not prepared
The research surveyed 600 institutional investors across six global markets representing $20 trillion in assets under management
November 17, 2020, New York, N.Y. – Today Ƶ announced the findings of new proprietary research of investors revealing that investors are applying a premium valuation to companies that excel in environmental, social impact and governance (ESG) initiatives. The research also found that investors temporarily deprioritized ESG practices during the global Covid-19 pandemic, however, investors agree that profitable companies do not get a pass.
Notably, “social” jumped in ranking from number three last year to number one as the most important ESG factor in the U.S. As we recover from the crisis, investors expect both their firms and the companies they invest in will intensify focus on ESG.
The 2020 Ƶ Trust Barometer Special Report: Institutional Investors identifies pivotal issues shaping investment criteria and how companies can build trust with the investment community. The proprietary research surveys 600 institutional investors in six countries representing firms that collectively manage over $20 trillion in assets. The survey was fielded from September 3 through October 9, 2020.
“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,” said Lex Suvanto, global managing director, Financial Communications. “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.”
Notable highlights from the U.S. results of the Ƶ Trust Barometer Special Report: Institutional Investors include:
Investors agree that companies that excel in ESG merit a premium
Ninety-two percent of respondents agree that companies with strong ESG performance deserve a premium valuation to their share price. Eighty-eight percent of respondents also agree that companies that prioritize ESG initiatives represent better opportunities for long-term returns than companies that do not.
Although investors have temporarily deprioritized ESG in the current market environment, they expect to intensify their focus on ESG as we recover from Covid-19
Due to the economic impact from Covid-19, seventy-nine percent of respondents said their firms are temporarily deprioritizing ESG as an investment criteria, with seventy-seven percent saying the companies they invest in are doing the same. However, as we recover from Covid-19, ninety-six percent of respondents said they expect their firms to increase prioritization of ESG, with ninety-three percent expecting the companies they invest in to do the same.
Amongst the three elements of ESG, social now ranks as the most important element for investors in the U.S.
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.
Diversity and inclusion data impacts investor trust and share price
Ninety-two of respondents either strongly agree (forty-four percent) or somewhat agree (forty-eight percent) that strong diversity and inclusion (D&I) data have a positive impact on share price. Sixty-three percent of respondents also agree that disclosing employee D&I data impacts trust in companies a great deal, an increase of eleven-points from last year. These metrics have notably impacted portfolio investments: Seven in ten respondents now apply exclusionary screening criteria based on D&I data.
Market recovery will include a resurgence of shareholder activism and companies are still not prepared
Eighty-nine percent of respondents said that shareholder activism will increase as the economy rebounds. Ninety-three percent of respondents said they are more interested in taking an activist approach investing, an increase of twelve-points from last year. Notably, eighty-five percent of respondents also agreed that most companies are not prepared to handle activist campaigns, an increase of seven-points from last year.
Investors plan to accelerate engagement on climate risks in the next six months
Over the next six months, respondents said they are likely to increase their engagement with the Boards of companies they invest in across environment topics, including: the impact of climate risk on their companies (ninety-five percent), resource scarcity (ninety percent) and the eco-efficiency of company operations (ninety-four percent).
More investors value diverse Boards, with diversity of expertise generating the most trust
Sixty-nine percent of respondents say diversity within a Board impacts trust in companies a great deal, an increase of fourteen-points from last year. But when ranking the top three most important types of diversity within a Board to build trust, fifty-six percent of respondents said expertise across different areas of business was important compared to other metrics like gender diversity (twenty-nine percent), racial diversity (twenty-six percent) and ethnic diversity (twenty-six percent).
Investors agree that a multi-stakeholder approach delivers greater returns
Ninety-seven percent of respondents either strongly agree (fifty percent) or somewhat agree (forty-seven percent) that the multi-stakeholder model of governance is more conducive to delivering long-term financial returns than other models.
Nine in ten investors believe businesses must lead on positive societal change
Almost all respondents believe that business must lead on positive societal change: Ninety-two percent either strongly agree (fifty-seven percent) or somewhat agree (thirty-five percent) that business leaders have an obligation to use their power and influence to advocate for positive change in society.
Majority of investors believe trust is essential to managing a crisis
As the world approaches the one-year anniversary of the global pandemic, the majority of respondents agree that trust is essential to managing a crisis. Seventy-six percent of respondents believe that a high level of trust is either critically important (thirty-three percent) or important (forty-three percent) for companies to be able to manage effectively through a crisis.
Ƶ Ƶ Trust Barometer Special Report: Institutional Investors
The Ƶ Trust Barometer Special Report: Institutional Investors is a supplement to the Ƶ Trust Barometer, which is released annually at the World Economic Forum each January. This year’s report surveyed 600 institutional investors, including financial analysts, chief investment officers and portfolio managers across six countries (U.S., Canada, U.K., Germany, the Netherlands and Japan).
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We also serve as a strategic communications partner to investment banks, brokerage firms, real asset investors, hedge funds, private equity and venture capital funds, exchanges, and other institutional market participants. Our work is designed to inform investors, manage issues, and bridge divergent stakeholder needs with an aim of building trust and enterprise value.
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