New research highlights skepticism around company ESG plans

Eighty-six percent of US investors believe companies ‘frequently overstate or exaggerate their ESG progress when disclosing results’, according to Edelman’s latest Trust Barometer report. But it’s not just US investors that are skeptical when it comes to ESG credentials: globally, almost three quarters (72 percent) of investors say they don’t believe companies will achieve their ESG or diversity, equity and inclusion (DE&I) commitments.

German investors are most distrusting of the ESG statements put out by companies overall, at 87 percent, though the US is a close second. Japanese investors appear to be the least skeptical, though three quarters still note distrust in companies’ ESG reporting.

In a further signal that companies should take note – and be increasingly cautious about their ESG claims – researchers note that the vast majority of US investors (94 percent) say they think companies will face increasing litigation as a result of not delivering on their ESG promises.

Researchers surveyed around 700 institutional investors across seven markets (the US, Canada, the UK, Germany, the Netherlands, Japan and the Middle East) for the report, which looks at investor trends in ESG (and climate change more specifically), shareholder activism, employee activism and the meme stock phenomenon.

Despite the clear skepticism surrounding ESG goals, Edelman finds that 94 percent of US investors expect companies to establish and communicate a net-zero plan in the next 12 months, though more than one in nine (92 percent) add that they are concerned companies are not effectively executing on those pledges. Despite these concerns, 93 percent of US investors say firms that have communicated such plans deserve a premium.

As ESG has become a more commonplace theme in investing, Edelman finds that investors now scrutinize ESG data as much as they do operational and financial factors. Globally, 88 percent of investors agree with the statement ‘I subject ESG to the same scrutiny as operational and financial considerations’, a figure that rises to 90 percent among US investors.

With the ESG umbrella covering so many different themes, the research authors point out that there is greater mistrust around certain issues, and DE&I tops the list, with 53 percent of US investors saying they lack full trust in companies’ stated progress against DE&I goals or pledges. That is followed by the effective management of climate risk (52 percent) and greenhouse gas emissions (46 percent). Other issues on the list include mistrust around how a company responds to accusations of unethical conduct, pay gaps between executives and the average worker, and employee health and safety.

Interestingly, Edelman notes that ‘most investors are in favor of mandatory ESG disclosures and more regulation’.