With ESG is downgraded as a priority among portfolio managers, dollar-based metrics needed

Summary

After being the dominate theme in the hundreds of portfolio managers, ESG has been downgraded as a priority this year by portfolio managers surveyed by Edelman.

‘Social’ in ESG saw the biggest jump among investor priorities, especially in the US where it saw a 15% jump from last year among respondents.

Most respondents also feel underprepared for potential disclosure regulations: “84% among the 6-Market Global Average and 79% of U.S. investors believe that most companies are unprepared to comply with potential ESG disclosure regulations

The 2020 Edelman Trust Barometer Special Report: Institutional Investors surveys 600 institutional investors in six countries representing firms that collectively manage over $20 trillion in assets. The survey was conducted from September 3 through October 9, 2020.

Report

Analysis

It is not a surprise to see a ‘de-prioritization’ of ESG this year, at least in terms of perceptions, in a year of historic market volatility where it has gone mainstream while lacking standardized data and metrics on 1. How the issues are defined and 2. How performance is transparently measured.

As we have highlighted before, the existence of numerous competing ESG reporting frameworks and the lack of consistency and comparability of metrics have no doubt posed problems as ESG has moved into the mainstream.

Also notable is the lack of preparation for any potential ESG disclosure regulations. This is not uncommon for any issue that is not currently regulated. Companies generally won’t prioritize public disclosure and allocate resources to do it well unless forced to do so.

One thing that is required to keep ESG atop company and investor priority lists in a sustained way, is not just standardized data on ESG factors that so many are now clamoring for but dollar-based metrics for measuring performance and assessing how companies are or are not progressing against stated goals or targets, particularly on environmental issues. In this way, ESG issues (just like cyber) should be treated like every other business risk.

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Denis Bolshakov

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