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Half of investors are prepared to divest if companies fail to address ESG, reveals PwC survey

Shareholders vote against companies on ESGNearly half (49%) of investors say a company’s failure to address ESG issues might prompt them to divest their investment in the company, according to PwC’s 2021 Global Investor ESG survey.

The survey, which sampled more than 350 institutional investors globally, found that 82% believe ESG needs to be embedded in a firm’s corporate strategy, with nearly three-quarters, or 74%, of investors saying decision-making would be better informed if companies applied a single set of ESG reporting standards. 

At 59%, more than half of respondents also said a lack of action on ESG issues make it likely they would vote against an executive pay agreement, while a third said they have already taken this action. 

A large majority (79%) of investors believe that the way a company manages ESG risks and opportunities is an important factor in their investment decision making.

The survey revealed most investors are likely to act if companies are not doing enough to address ESG issues, but most also say that they don’t want a company’s action on ESG to significantly, if at all, impact their investment returns.

The vast majority, at 81%, said they would accept no more than one percentage point less in investment returns for the pursuit of ESG goals, while 49% were unwilling to accept any reduction in returns.

James Chalmers, global assurance leader at PwC, said: “Our research shows investors are simultaneously focused on short-term results as well as the longer-term societal issues that can create both risks and opportunities for their investments.

“It is clear that investors expect ESG to be an integral part of corporate strategy. That includes making expenditures to address ESG issues, while clearly communicating the rationale and benefits to the business strategy. If investors don’t see that commitment, they won’t hesitate to take action and that can include divesting their position in a company and taking their clients’ money elsewhere.”

Investors increasingly want to hear more from companies about their ESG-related commitments, with 83% of investors stating it is important that ESG reporting provides detailed information about progress toward ESG goals.

PwC said it was “concerning” that only one-third of investors surveyed, on average, think that the quality of ESG reporting they are seeing is good.

Investors gain greater confidence in ESG reporting that has been assured, with 79% of those surveyed splacing more trust in ESG information that has been assured, while 75% think it’s important that reported ESG-related metrics are independently assured.

Nadja Picard, global reporting leader at PwC Germany, added: “Our survey reinforces the need for a single set of globally-aligned sustainability reporting standards. Without global standards, investors are severely challenged in evaluating ESG performance.

“It is also much more difficult for companies to report on ESG performance without common benchmarks or frameworks to follow. As a result, companies today need to leverage the best of existing standards, focusing at least initially on the topic of climate, to respond to urgent investor demand.”

Climate is the leading ESG consideration among the investors surveyed, with reducing Scope 1 and 2 greenhouse gas (GHG) emissions being the most cited ESG issue for companies to prioritise, at 65%. 

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