91% of Global Institutional Investors Say "ESG Has a Significant Impact on Investment Decisions"

EY Hanyoung 'Climate Change and Sustainability Services Survey' Results

[Asia Economy Reporter Minji Lee] Nine out of ten executives at global investment institutions believed that ‘ESG (Environmental, Social, and Governance)’ had a significant impact on investment decision-making over the past year.

According to the results of the ‘EY Climate Change and Sustainability Services 5th Survey’ released on the 13th by global accounting and consulting firm EY Hanyoung, 91% of global institutional investors responded that non-financial performance of companies played a major role in investment decisions over the past 12 months. This indicates that the weight of ESG indicators is increasingly expanding in the process of evaluating corporate performance and investment value. The proportion of respondents who said that non-financial performance frequently influenced their decisions rose to 43%, nearly a 10 percentage point increase from 34% in the 4th survey conducted in 2018.

Climate change-related information was found to play an important role in institutional investors’ decision-making processes. Seven out of ten respondents (73%) said they spend a significant amount of time and attention assessing the physical risk factors of climate change when deciding on investment targets and intentions.

Matthew Nelson, EY Global CCaSS Leader, explained, “The rules of the capital market are being newly established. Institutional investors are focusing more on long-term value creation rather than short-term performance, raising the importance of ESG factors in the process of evaluating companies.”

Although the importance of the non-financial sector in investment decisions is increasing, accessibility to data remains low. The proportion of investors dissatisfied with corporate disclosure of environmental risk factors increased from 20% in the 4th survey in 2018 to 34% in the 5th survey. The proportion of institutional investors who said companies do not provide sufficient information on social and governance risks that could adversely affect business models also surged over two years, from 21% to 41% (social) and from 16% to 42% (governance), respectively.

Accordingly, investors expressed the need for independent and objective evaluations of companies’ ESG report cards. Eighty-two percent, equivalent to four out of five survey respondents, said that independent audits are necessary to increase the reliability of green investment-related disclosures.

Lee Kwang-yeol, Head of Audit at EY Hanyoung, advised, “Global institutional investors’ expectations for the scope and reliability of corporate ESG disclosures are rising. In preparation for the post-COVID era, a foundation must be established to simultaneously enhance the transparency and reliability of non-financial information.”

Meanwhile, the survey was conducted in February this year, with 298 executive-level personnel from investment institutions worldwide participating.