Source: Sing Tao Headlines

Global professional services firm Ernst & Young recently released its Institutional Investor Survey 2024, which shows that while 88% of investors have increased their use of ESG data over the past year, 85% of respondents believe that corporate “greenwash” is a more serious problem than it was five years ago. The survey covered 350 investment decision makers from asset management firms, private banks, insurance companies and other organizations around the world.

The survey reveals the deep dilemmas facing the global ESG investment market today. On the one hand, demand for sustainable investments continues to climb, with 74% of asset management firms reporting increased client interest in ESG investment products, and 77% of institutions increasing their related product development efforts. On the other hand, nearly two-thirds of investors say they are likely to reduce the use of ESG factors in their decision-making and focus instead on short-term returns, reflecting the market's faltering confidence in sustainability investing.

The core reason for this phenomenon is the inadequate quality of corporate ESG disclosure. According to the survey, 80% of investors believe that corporate sustainability reports need to be improved in terms of materiality and comparability, and 62% of investors are concerned about the accuracy of the reports. In recent years, some companies have made exaggerated or misleading statements in their sustainability reports in order to meet market demand, sparking widespread investor concern.

Global regulators are actively addressing this challenge. The European Union has introduced the Corporate Sustainability Reporting Directive (CSRD), which requires companies to disclose ESG information according to more stringent standards. The IFRS Foundation has also issued the ISSB standard, which is committed to establishing a globally harmonized sustainability reporting framework. These initiatives have received a positive response from investors, with 65% and 68% of respondents believing that CSRD and ISSB standards are effective in supporting long-term investment decisions, respectively.

Source: Hong Kong Commercial Daily

Investment institutions are also actively preparing for the new standards. The survey found that more than half of the institutions are prioritizing talents with ISSB or CSRD expertise in recruitment, and nearly half of them have stepped up relevant training. Many leading asset management firms are also upgrading their ESG data analysis systems and developing more accurate assessment tools to improve the science of investment decisions.

It is worth noting that against the backdrop of many uncertainties in the global economy, investors' concern for short-term market risks has risen significantly. The survey shows that trade restrictions and tariffs have become the top macro factors affecting investment decisions, accounting for 62% of the total. However, the impact of climate change remains the second most important consideration, particularly in North American and European markets, reflecting the undiminished importance of sustainability issues in the investment landscape.

Experts from Ernst & Young's Global Climate Change and Sustainability Services point out that there is a clear “rhetoric and behavior gap” in the current ESG investment market. While some organizations promote the concept of sustainable investment, their actual investment decisions are still overly focused on short-term returns. 92% of investors believe that the short-term performance risks outweigh the long-term benefits of ESG-related investments, a perception that may affect the flow of capital to projects with real long-term positive impacts.

As the global sustainability process accelerates, ESG investing is entering a critical transition period. Some leading asset managers have begun to deeply integrate ESG factors into their investment analysis frameworks, no longer viewing them as mere risk considerations, but as an important dimension in uncovering long-term investment value. At the same time, the improvement of regulatory standards and the quality of information disclosure are expected to lay the foundation for rebuilding confidence in the ESG investment market.

Industry experts believe that the future development of ESG investment will focus on improving the transparency and comparability of information and enhancing the scientific nature of investment decisions. With the application of new-generation ESG assessment tools and methodologies, investors will be able to more accurately identify and assess sustainable development opportunities, and promote the transformation of the capital market in a more sustainable direction.

Editor's Notes:

This Ernst & Young survey report hits the nail on the head when it comes to the core pain points of the current ESG investment market. Against the backdrop of growing demand for sustainable investments, investors' trust in ESG data is declining, a contrast that is thought-provoking.” The growing problem of “greenwashing” reflects the immaturity of the market in its rapid development and highlights the urgency of improving the regulatory system.

Of particular concern is the inconsistency between investors' words and actions in ESG decision-making. The ambivalence of focusing on long-term sustainable development while paying too much attention to short-term returns may affect the healthy development of ESG investments.

However, from a positive perspective, the introduction of new standards such as the EU CSRD and ISSB, as well as the layout of investment institutions in terms of talent and technology, show that the market is developing in a more standardized and professional direction. This may signal that ESG investment is about to enter a new, more mature stage.