Attitudes to ESG sharply divided between investors and US corporates

A new survey of international investors has found that 100% of respondents said ESG risks and opportunities played a greater role in their investment decisions.

Corporate advisory firm Morrow Sodali surveyed 41 institutional investors with a combined $26 trillion in assets.

Asked the question ‘have ESG risks and opportunities played a greater role in your investment decisions during the last 12 months?’ 100% replied ‘yes’. Of them, 86% said climate change was the biggest ESG risk and opportunity issue.

In an indication that investors and corporates do not see eye to eye on this issue, the latest PwC Annual Corporate Directors’ Survey said on this issue: “enough is enough”. At almost double the number last year, 56% of directors said that investors are devoting too much attention to E&S issues.

It should be noted that Morrow Sodali’s survey is an international one, while PwC’s is a survey of US directors, but the disconnect is clear.

Asked what companies could do to improve their disclosure of climate risk, 91% of Morrow Sodali’s respondents said they expect companies to demonstrate “a link between financial risks, opportunities and outcomes with climate-related disclosures”.

Strong support was also shown for clarity on how risks and opportunities are identified, consistency across markets, disclosures about time horizons and more information on risk management. For the form of disclosures, there was overwhelming support for SASB [Sustainability Accounting Standards Board] and TCFD [Task Force on Climate-Related Financial Disclosures], with both recommended by around four-fifths of respondents.

Of focus topics for engagement with the board, investors said, overwhelmingly (91%), it was climate change, but a solid second was human capital management, with almost two-thirds citing this as a top engagement topic.

There was also some support for a ‘say on sustainability’ vote, with only 30% saying there were sufficient avenues for shareholders to have their say. There was division on what form a vote could take, however, with roughly equal numbers supporting: a vote similar to Spain’s recently introduced vote on non-financial information, a vote on the robustness of the disclosure and on linking director elections to non-financial information.

PwC’s survey paints a very different picture: 57% say ESG is already integrated into their board's oversight of enterprise risk management, calling into question what the other 43% are doing. Only 50% say their board has a strong understanding of the ESG issues impacting the company and only 50% say ESG issues are linked to their company’s strategy. Finally, a mere 34% say ESG regularly appears on their board meeting agendas.