Majority of institutional investors more likely to divest post-pandemic

The Covid-19 pandemic has strengthened institutional investor confidence to divest from those companies with poor environmental, social and governance (ESG) ratings, according to new research from Ernst & Young (EY).

As many as 74% of institutional investor respondents confirmed they were now more likely to divest than before the pandemic, while the vast majority, 90%, confirmed that today they pay heed to a company’s ESG performance when making investment decisions, but were previously slow to take action.

According to the 2021 EY Global Institutional Investor Survey, which canvassed the views of 320 institutional investors across 19 countries, also found a rising number of investors were concerned about the quality of information from companies, and many felt there was an urgent need for better quality disclosure from companies.

“If there is going to be real progress in the years ahead, investors need to make ESG performance part of their strategic planning; and companies must act fast to provide clearer and more detailed disclosure on ESG risks,” said Mathew Nelson, EY global climate change and sustainability services leader.

“But 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 added.

Over 77% of those surveyed also said that, over the next two years, they plan to step-up their analysis of physical risks and the extent to which climate change impacts a business’ ability to provide its products and services, marking an increase from 73% in 2020.

Respondents said they looked at several factors in order to make investment decisions, including whether the company had an appointed ESG representative, and whether organizational culture was aligned with ESG goals.

However, just 42% indicated they were concerned about whether boards had failed to acknowledge ESG performance, or whether executive compensation was tied to it.

Sustainability achievements are now routinely acknowledged alongside traditional key performance indicators (KPIs), according to research from PWC, which found 78% of board members and senior executives agree strong ESG performance contributes to financial performance, but as little as 45% of FTSE companies had ESG measures in executive pay.