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Investors shun companies with poor ESG track records

ESG investingClose to three quarters of investors are more likely to divest from companies with poor ESG track records, highlighting an urgent need for better quality disclosure from companies, the latest EY Global Institutional Investor Survey has found.

The report, which canvassed 320 institutional investors across 19 countries, showed 90% of investors now attach greater importance to ESG performance in their decision-making than they did prior to the Covid-19 pandemic.

A further 92% said some of the decisions they had made in the past 12 months were based on the potential benefits of a ‘green recovery’.

More than three- quarters of those surveyed said that they plan to step-up their analysis of “physical” risks – the impact of climate change on a business’ ability to provide its products and services – over the next two years, an increase from 73% in 2020.

Similarly, 80% will be doing more to evaluate “transition” risks – the market impacts that might result from the move to a low carbon economy – up from 71% in 2020. 

The report also identified investor concerns about the quality and transparency of ESG reporting on the part of the companies that they consider. Half of those surveyed said they don’t believe companies are reporting adequately on financial material issues. That is a marked increase from 37% in 2020. 

Marie-Laure Delarue, EY global vice-chair, assurance, said: “It’s clear that the Covid-19 pandemic has spurred investors to place more emphasis on ESG performance. There are positive signs that this is starting to translate into action, although both companies and investors need to take bolder steps to put ESG performance right at the centre of their decision-making.

“But it is also clear that the road ahead is too long, given the expectations of society, and that real progress requires the involvement of investors and companies, alongside auditors, standard setters and regulators. We all need to be at the table.”

EY’s global climate change and sustainability services leader, Mathew Nelson, added that in order to make real progress in the coming years, investors must make ESG performance part of their strategic planning, while companies must provide clearer and more detailed disclosure on ESG risks.

"There’s no escaping the fact that we urgently need a clearer regulatory landscape, with consistent global standards that investors and companies alike will need to follow,” he said.

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