Companies failing to act responsibly may lose investors, report says

Environmental, social and governance (ESG) issues have now become a "make-or-break" consideration for leading investors around the world, according to new research by PwC.

Almost half of investors surveyed for the accounting giant’s report said they were willing to divest from companies that are not felt to be taking sufficient action on ESG factors.

About six in 10 also say the lack of action on ESG issues makes it likely that they would vote against an executive pay agreement, while a third say they have already taken this action.

The majority (79 per cent) confirm that the way a company manages ESG risks and opportunities is an important factor in their investment decision-making.

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In-depth interviews

The findings are included in the PwC 2021 Global Investor ESG Survey, which represents the views of 325 investors – primarily active asset managers and analysts with investment firms, investment banks or brokerage firms, including some participants based in Ireland.

An additional 40 in-depth interviews were conducted globally with investors and analysts who have more than a combined $11.6 trillion (€10 trillion) assets under management.

Climate is the leading ESG consideration for investors surveyed, with a reduction in Scope 1 and 2 greenhouse gas emissions regarded as the most pressing issue.

Investment returns

But while most investors are likely to take action if companies are not doing enough to address ESG issues, they do not want companies to pursue ESG goals at any price.

Most investors also say they don’t want a company’s action on ESG to significantly, if at all, impact on their investment returns.

Some 81 per cent said they would accept no more than one percentage point less in investment returns for pursuit of ESG goals. Almost half (49 per cent) were unwilling to accept any reduction in returns.

"Our research shows that investors are simultaneously focused on short-term results as well as the longer-term societal issues that can create both risks and opportunities for their investments. It is clear that investors expect ESG to be an integral part of corporate strategy," said PwC Ireland asset management leader Trish Johnston.