Investors focus on climate while social issues are lower concern, finds survey

Institutional investors have named climate change as their top ESG issue for 2021, while showing less interest in social topics despite their rise to prominence amid the Covid-19 pandemic, according to a survey by Bank of America’s (BofA) global research team.

In a poll conducted during the bank’s ESG conference in December, investors say their top ESG issues are climate change, corporate governance, supply chains and renewable energy.

Only one in four respondents include labor issues among their top three ESG topics for the year, however, with diversity and community engagement faring even worse.

‘Interestingly, climate change and supply chain-related panels also saw the largest audience at our conference, underlining the importance institutions place on these topics,’ write BofA analysts.

‘Surprisingly, S issues such as diversity and community engagement saw less than a quarter of respondents viewing it as a big focus for 2021.’

Investor focus on climate change continued to grow strongly in 2020, despite the impact of Covid-19. In one sign of progress, major institutions like BlackRock, State Street Global Advisors and JPMorgan Asset Management signed up to the Climate Action 100+ initiative, which pressures companies to cut emissions.

The last 12 months have also seen social issues rise in prominence. The Covid-19 outbreak forced companies to focus on employee safety and mental wellbeing, while Black Lives Matter protests shone a spotlight on diversity. 

Other surveys cite social areas as a higher focus for investors. For example, the Edelman Trust Barometer, released in November last year, sees social issues climb from third place to first in a list of institutional investors’ ESG priorities. 

The BofA survey also reports that institutions are building out their internal ESG capabilities. According to the poll, 80 percent of respondents say they use internal research to identify material ESG risks. This in-house work complements the widespread use of third-party research, with 90 percent saying they use third parties for spotting risks. 

Company reports are viewed as less vital, however: only 60 percent of respondents say they use them to pick out risks related to ESG issues. This may come as a surprise to companies and their IR teams given the widespread use of materiality assessments in sustainability reporting. 

In a separate question, investors say the most important way for companies to improve their approach to ESG is to standardize corporate disclosure, followed by better management of goals.  

Just under half of respondents also call for companies to improve their investor engagement over ESG issues. 

Investors have long called for more consolidation among ESG reporting methods and last year saw a number of significant moves in that direction. 

In September five reporting groups – CDP, the Climate Disclosure Standards Board, the Global Reporting Initiative, the International Integrated Reporting Council (IIRC) and the Sustainability Accounting Standards Board (SASB) – pledged to work together on a shared vision for corporate reporting.

Then in November, SASB and IIRC announced plans to merge into one organization by the middle of 2021.