The vast majority of professional investors globally have put in place ESG investment policies over the past several years, with investors looking both to minimize sustainability-related risk and capitalize on opportunities, and citing factors including regulatory requirements, improved performance and talent attraction, according to a new study released by global professional services firm Deloitte and The Fletcher School at Tufts University.
For the study, Deloitte and The Fletcher School surveyed more than 1,000 asset owners, asset managers, and investment advisers, including CEOs, CIOs, Heads of Strategy and other senior investment executives across regions including North America, Europe, and Asia, and also conducted interviews with sustainability and investment leaders, between January and December 2023.
The study found significant growth in the proportion of investors establishing sustainable investment policies, with 79% of investors reporting having a policy in place, up from only 20% 5 years ago. Nearly all other investors report having a “loosely defined ESG investing policy” in place or have plans to develop a sustainable investment policy, with only 1% reporting no plans for a policy.
Despite highly visible anti-ESG campaigns ongoing in the U.S., the survey found that U.S. investors were actually more likely to have sustainable investment policies in place than their global peers, with 83% of professional U.S. investors reporting having ESG investing policies, up from 27% five years ago. European investors lagged their U.S. counterparts slightly, at 75%.
The study asked investors to list the top 3 drivers for integrating sustainability factors into their investment decision-making processes, with the most commonly cited reasons including regulatory requirements (39%), improved financial performance (36%) and stakeholder influence or pressure (34%). Interestingly, U.S. investors, while also reporting regulatory pressure as the most common driver for integrating sustainability factors (39%), were more likely to cite talent retention and attraction as a key driver, at second place at 37%.
Chris Ruggeri, a Deloitte Risk & Financial Advisory principal and sustainability, climate and equity leader, said:
“Many factors, including evolving regulatory requirements, financial performance pressures, and stakeholder expectations, are driving the U.S. movement toward integrating sustainability and ESG into investment decision-making. As such, company leaders and their boards have an important opportunity to take actions that can improve investor confidence and trust levels in those investments, such as making enhancements to the sustainability information, disclosures, and other sources that inform buy, sell, and hold decisions.”
Additionally, while more than 83% of investors reported either regularly or occasionally using sustainability information in their fundamental investment analysis, interviewed investors said that they did not believe that ESG factors are effectively incorporated into equity prices yet, according to the study.
The survey also assessed the key barriers inhibiting organizations’ ability to implement sustainable investing, with the most commonly cited challenges including a lack of clarity on how to integrate ESG information and inconsistency or incomparability of ESG ratings data, with other top factors including over- or under-regulation, cost constraints, and a lack of clear strategies by corporations to achieve their ESG goals.
The study also found a strong correlation between the trust investors have in ESG data sources and their use of those sources, with in-house proprietary data systems and audited or assured corporate disclosures reported as the top 2 trusted (70% and 69%, respectively) and most regularly employed (51% and 52%, respectively) sustainability data sources. Interviewed investors indicated that they expect that recently launched sustainability disclosure standards and regulations will address many of the ESG data challenges, with increased consistency and standardization.
Michael Bondar, a Deloitte Risk & Financial Advisory principal and global enterprise trust leader, said:
“There is considerable room for improvement in how organizations collect, measure, report on, and validate sustainability data to earn investor trust. But, more consistency and dependability in sustainability reporting for measurement and analysis purposes should help enhance confidence for stakeholders throughout the corporate ecosystem.”
Bhaskar Chakravorti, Dean of Global Business at The Fletcher School at Tufts University, added:
“The focus on sustainability data is growing globally. India’s Securities and Exchange Board requires top public companies to disclose ESG related activities, and the European Union now requires sustainability disclosures under the Corporate Sustainability Reporting Directive starting from periods beginning in 2024. And as of this month, rules were adopted in the United States as well.”
Click here to access the study.
