Survey: 9 in 10 investors do not trust corporate ESG claims
While investors increasingly want companies to disclose more information on their environmental, social and governance (ESG) targets and progress, most find it difficult to trust business's claims at face value, and to compare different firms.
That is according to the results of a survey of more than 4,600 individual investors across the US, US, France and Germany, commissioned by software-as-as-service company Workiva.
Published today (25 May), the survey results found that the majority of investors across all geographies (70%) believe that corporates have a responsibility to prove they are meeting ESG pledges to their current and prospective investors.
Most respondents from the Gen Z and Millennial age set said they would be more likely to invest in a company purely based off of strong ESG disclosures and performance. Moreover, most also agreed that Covid-19 and the other events of 2020 had made ESG more important, and that climate change will make ESG more important still in the coming years and decades.
But, due to issues such as greenwashing and to a lack of unified disclosure, 90% of respondents said they find it hard to trust business’s ESG claims at face value, with almost two-thirds (62%) adding that they find it challenging to assess whether companies are doing better than their peers in terms of environmental and social impacts. Distrust was generally higher among younger investors.
A particular challenge raised is that many businesses offer qualitative descriptions and assessments rather than data in numerical terms. Without quantitative data, Workiva clams, many investors find it hard to make comparisons and judgements.
Changes to disclosure could result from regulation, pressure from institutional investors, pressure from the general public or engagement with individual investors, the survey notes. To this latter point, almost two-thirds (64%) of survey respondents said they would like to see individual investors demand better transparency from end-user businesses.
“Our survey findings represent a powerful motivation for organisations to take a serious look at how they are reporting ESG and other non-financial data,” Workiva’s chief operating officer Julie Iskow said.
“We believe there is a real competitive advantage in attracting today’s modern investors with a commitment to corporate transparency.”
The findings echo those of a recent poll of 650 investors from 26 countries by Schroders, in which greenwashing was found to be the biggest challenge to ensuring that investment portfolios are truly sustainable.
In geographies including the EU and UK, ESG reporting requirements are changing. In the EU, 2021 will see the Sustainable Finance Disclosures Regulation (SFDR) coming into force. The Regulation aims to unify climate risk disclosures across the private sector by 2023 and will force businesses to report on a set of “principal adverse impacts” across society and the environment.