Some 92% of investors believe that ESG-related investments can jeopardise short-term performance, even though they recognise their long-term potential, a new study by EY has found.
The EY 2024 Institutional Investor Survey found that while a sizeable majority (88%) of investors have increased their use of ESG information, there is a gap between the sustainability commitments made and the actions they take.
In addition, some 85% of investors believe that greenwashing is getting worse, however 93% believe that their business will meet its sustainability targets.
Economic factors
In general, EY‘s study found that while investors understand the importance of sustainability for long-term value creation, short-term economic factors can weigh on the implementation of such measures.
The challenge for investors is balancing immediate macroeconomic concerns—such as economic slowdowns, trade restrictions, and rising capital costs—with the need to invest in companies that prioritise sustainability.
Some two-thirds of respondents said that shifts in business cycles, such as periods of slower economic growth, or recession periods, will most likely affect their firm’s investment strategy over the next two years.
Monitoring climate change
While trade restrictions and tariffs (62%), cost of capital (53%), and labour cost and availability (50%) are among the key areas being monitored by investors, some 55% also state that they are set to monitor the impact of climate change with regard to their investment strategies.
‘Investors in Europe and North America are far more likely than their peers in other parts of the world to see climate change as a driver of investment strategies,’ EY said. ‘This correlates with the maturity of those markets in terms of regulation and policy relating to climate change.’
On greenwashing, the percentage of businesses that state that greenwashing practices are more prevalent now than five years ago is on the increase, a statistic that EY has described as ‘troubling’.
‘To protect their capital and effectively manage their risks, investors should encourage their investee companies to publish a transition plan and disclose their financial commitment to transition activities,’ EY added. Read more here.
