Investors want companies to report on Environmental, Social and Governance (ESG) factors, but relay that a lack of standardised, high quality data is a significant barrier to integrating them into investment practices.
The new study, Investing Enlightenment: How Principle and Pragmatism Can Create Sustainable Value through ESG, found that 92% of institutional investors want companies to identify and report ESG factors that materially affect performance. At the same time, 60% cite a lack of industry standards for measuring ESG as a significant barrier to full integration into investment practice.
Similarly, whilst 46% of retail investors want more companies to report on ESG performance, 46% state they need more data from other sources in order to make educated decisions.
Bob Eccles, Visiting Professor of Management Practice at Saïd Business School University of Oxford and co-author of the study comments: ‘ESG Data is only useful if it can help achieve investment goals and that requires a clear understanding of which factors are material for financial performance. Two-thirds (64%) believe this determination should sit with the board of directors, with only 14% stating it should be Chief Financial Officer or Head of Investor Relations. It underlines the strategic importance of ESG factors and signals that the investment industry doesn’t believe financial roles are yet in tune with ESG integration.’
Whilst data and a lack of transparency continue to pose hurdles to ESG investing, the study found that many of the traditionally perceived barriers to ESG integration are receding. Only 35% of institutional investors believed that ESG factors equalled lower returns and nearly three quarters of institutional investors (74%) viewed three years plus as a realistic timeframe for ESG investments to realise above market performance. Only a minority of 10% of institutional investors saw fiduciary duty as a barrier to ESG integration.
The study proposes a model for the integrating ESG factors into investment practice – based around five key areas of accountability, engagement, education, access to relevant data and longer time horizons.
‘The study is encouraging as ESG factors are seen as important by the majority of investors, but we need solid data for them to become standard in investment practice,’ concluded Peter Tufano, Peter Moores Dean, Saïd Business School: ‘The study is a timely and valuable contribution to encouraging asset owners – and ultimately companies -- to agree on a voluntary framework for ESG reporting.