A growing number of institutional investors in Canada and around the world are placing greater emphasis on environmental, social and governance (ESG) performance in their decision-making, but many have not taken any action to update their investment policies and frameworks, according to the 2021 EY Global Institutional Investor Survey.
Most investors (74 per cent) indicated they are more likely to divest from companies with poor ESG track records, but concrete action is still lacking despite the urgent need for better quality disclosure from companies.
Pandemic has pushed ESG forward
"The COVID-19 pandemic has been a powerful catalyst to laser focus on all facets of ESG, putting pressure on both companies and investors to assess risks effectively and meet increasing stakeholder demand on addressing climate, social and governance issues," said Thibaut Millet, EY Canada Climate Change and Sustainability Services Leader.
"While quality non-financial disclosures and a clearer regulatory landscape — coupled with more sophisticated data analytics capabilities — are important to realizing the full potential of ESG performance, companies cannot wait. There needs to be bolder steps taken all on fronts to put ESG performance at the heart of decision-making."
The report shows that 86 per cent of these investors will invest in companies that have an aggressive carbon footprint reduction or a low carbon footprint. A further 90 per cent of investors now attach greater importance to ESG performance in their decision-making than they did before the COVID-19 pandemic, and 92 per cent say they have made decisions over the past year based on the potential benefits of a "green recovery."
And yet despite the sharpened focus on ESG performance, less than half have taken action to update their investment policies and frameworks (49 per cent) or revamp risk management strategies (44 per cent).
"Although there are clear intentions to look more closely at ESG risks across portfolios and investment targets in the future, institutional investors have been relatively slow to make concrete changes to the way they operate," said Millet. "In the absence of a clear and consistent regulatory framework, investors looking to build an ESG-driven culture should start by reviewing current investment strategies for individual funds and portfolios and updating processes, systems and controls, while putting bold and forward-looking data analytics strategies in place."