Edelman: ESG key to rebuilding investor trust post Covid-19

ESG criteria still championed by investors despite retrogressive attitude from policymakers

Environmental, social and governance (ESG) will play a crucial role in rebuilding trust between companies and the investment community, the latest Edelman Trust Barometer has found.

This comes after suggestions ESG was temporarily deprioritised by many during the pandemic.

However, mindsets are now changing back, and the latest Edelman survey shows the majority of institutional investors are looking to increase their ESG holdings and activity.

US respondents in particular expressed a greater enthusiasm going into 2021, which suggests demand among investors has not waned.

Over 600 institutional investors accounting for $20trn in AUM took part in the survey, with 91% revealing they would increase their prioritisation of ESG in a post-Covid-19 environment. Meanwhile 88% of respondents said they expected the companies they invest in to do the same.

This is a correction from the 79% who admitted they had temporarily relaxed their work in this field during the height of the pandemic. During this period, 77% of respondents reported seeing this same reaction in the companies they invest in. 

The Edelman survey collected responses from six major markets around the world, but greater enthusiasm was noted for ESG from US respondents.

Among US respondents, 96% of whom expect their firm to increasingly prioritise ESG in a post-Covid-19 environment while 93% expect to see this from the companies their firm invests in.

This comes despite a retrogressive attitude from US policymakers towards ESG in recent years, in contrast to the developments being seen in the UK and Europe over the same period.

In 2017 then-newly-elected President Donald Trump confirmed the US would be leaving the Paris Climate Change Agreement and this set the tone for US policymakers’ attitude towards ESG engagement during his administration.

In 2019 the Department of Labor, overseen by Trump-appointed Secretary of Labor Eugene Scalia, proposed the introduction of restrictions on US pension funds that would effectively make ESG investments harder unless a financial gain was championed.

These proposals were widely condemned by opposing lawmakers, pension funds and investor groups alike.

Elsewhere the Securities and Exchange Commission (SEC) has also drawn criticism for its lack of work encouraging and enforcing ESG engagement among the institutional investors and listed companies it regulates.

Lex Suvanto, global managing director of financial communications at Edelman, said this change in mindset is a result of both underlying companies and asset managers recognising they need to do more to rebuild trust with end investors.

“While the global pandemic has forced some companies to temporarily deprioritise ESG efforts, investors clearly believe that a robust ESG strategy has a positive impact on share price and resilience,” said Suvanto.

The survey found recognition of these benefits was becoming more widespread, with 92% of respondents agreeing companies with strong ESG characteristics deserved a higher share premium.

At the same time, 88% of respondents agreed that these companies represented better long-term investment opportunities overall. 

Suvanto expects shareholder activism to become more critical to supporting alignment of companies, asset managers and investors and that boards must get ready for direct engagement on these matters. He added: “The great majority of investors believe that a multi-stakeholder approach will deliver enhanced returns and say that companies that do this well will have a competitive advantage in building trust.”

The survey revealed a greater ambition among respondents with 93% declaring they would become more active shareholders, a 12-point increase from 2019.

However, 85% of respondents said they did not think the companies they invest in are ready to engage with this, a 7-point increase from 2019.