The fifth annual Edelman Trust Barometer Special Report: Institutional Investors, released November 17, shows the majority of institutional investors in Canada do not trust companies to achieve their stated sustainability, environmental, social and governance (ESG) or diversity, equity and inclusion (DEI) commitments. They believe ESG progress is being overstated, and more say they are considering activist approaches to investing.
The report shows 72 per cent of Canadian institutional investors do not trust companies to achieve their stated ESG and DEI commitments and 77 per cent believe companies frequently overstate or exaggerate their ESG progress when disclosing results. The majority in Canada, 73 per cent say they are more interested in taking an activist approach to investing, with 57 per cent saying they plan to take aggressive activist measures. Finally, they say 71 per cent of institutional investors in Canada believe meme stocks represent a targeted attack against institutional investors. Globally, 84 per cent of institutional investors felt the same. Overall, Edelman surveyed 700 institutional investors across seven markets including the United States, Canada, the United Kingdom, Germany, the Netherlands, Japan and the Middle East.
“New research released by Edelman Smithfield in Canada highlights a sharp rise in skepticism and increased scrutiny by Canadian institutional investors of ESG initiatives and related disclosure by Canadian issuers,” the firm writes in a statement announcing the release of its survey results. “While the majority of Canadian (institutional) investors surveyed continue to believe that companies that deliver strong ESG performance deserve a premium valuation, the majority question the accuracy of the ESG disclosures they examine, have doubts about companies’ ability to achieve their stated ESG commitments and are pushing for mandatory and standardized ESG disclosure requirements.”
The firm says the results are a marked shift relative to sentiments expressed in the past. “In 2021 investors began looking at EST through a much more critical lens,” says Edelman Smithfield managing director, David Ryan. “The tone has shifted from interest and appreciation to skepticism and a notable lack of trust in the ESG story.”
He adds that firms are now scrutinizing ESG performance with the same rigor normally reserved for operational and financial metrics. Of those surveyed, 82 per cent in Canada say this evaluation will result in a rise in ESG-related litigation.
The survey also examines investors’ beliefs about employee activism – 72 per cent in Canada say they believe employee activism is indicative of a healthy workplace culture. More, they say 53 per cent think it’s important for a board of directors to be held accountable for maintaining positive company culture.