EY: Do Investors Care about Sustainability?

The EY 2024 Institutional Investor Survey shows a notable decrease in investor enthusiasm for sustainability, challenging the upward trend of the last decade in sustainable investment.

The survey, engaging 350 key investment decision-makers from diverse financial institutions, provides vital insights into the emerging chasm between declared sustainability values and actual investment behaviour.

Previously, sentiments around Environmental, Social and Governance (ESG) factors had been increasingly integrated into the fabric of investment strategies.

However, EY's findings suggest discrepancies in the application of these declared principles.

What does the survey say?

The report’s co-author Matthew Bell, Global Leader for Climate Change & Sustainability Services at EY, said on LinkedIn: “We began surveying the industry well over a decade ago with an ever-increasing trend toward investors saying ESG was fundamental to their decision-making.

“However, this year I wanted us to critically assess whether what they'd been telling us is what is happening in practice.

“It's fair to say our intuition was right: there is a significant say-do gap.”

Statistics from the survey reinforce this point with concerning figures:

• A massive 88% of respondents report an upsurge in their reliance on ESG data, yet, paradoxically, 92% express concerns over the short-term impacts of ESG initiatives on corporate performance
• Despite the proliferation of sustainability reports, a significant two-thirds (66%) anticipate a reduction in ESG considerations in future decisions
• Business cycle fluctuations are likely to significantly influence investment strategies, with 63% flagging this as a concern for the next two years
• While dismay over greenwashing grows, with 85% viewing it as an escalating issue, an optimistic 93% believe companies will ultimately meet their sustainability targets.

The gulf between proclaimed ESG commitments and their operationalisation reveals a halting progress in the prioritisation of genuine sustainable investments.

Investors face a dilemma

The survey’s findings illustrate a challenging landscape for investors, pivotal to steering the global economy towards sustainability.

Although acknowledging the economic and political imperatives of sustainable practices and the long-term benefits of adapting business models, external pressures often skew investment priorities towards immediate, short-term gains.

Michelle T Davies, Global Head of Sustainability (EY Law), who contributed to the report, said on LinkedIn: “It is only when we have a true understanding of the real position that we can work on better outcomes.

“The reality is that many investors and investees are facing a multitude of financial and operational challenges.

“It’s our job to find the solutions which enable them to achieve sustainability while remaining financially successful.”

Put off by greenwashing fears

Compounding the challenge is the pervasive worry about greenwashing.

Many investors remain sceptical about the reliability of the sustainability narratives propounded by companies.

The survey shows that 85% of investors saw greenwashing as a proliferating issue, obstructing trust and transparency in sustainability reporting and standards.

This scepticism is reshaping how capital is allocated, as investors grow wary of potential misrepresentations.

Will the say-do gap narrow?

Whether this disconnect between sustainability aspirations and investment realities will bridge remains uncertain.

The survey hints at sustainability fatigue among investors, underscored by the difficulties of aligning long-term sustainable value with immediate financial results.

This disparity is not uniform globally.

In Europe, some level of accountability remains, whereas in the US, historical and prospective political changes cast a shadow over the continuity of ESG-focused strategies.

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