A recent EY global survey shows that investors increasingly rely on ESG data, despite concerns over the reliability of such information. According to the EY 2024 Institutional Investor Survey, 88% of respondents reported increased use of ESG data over the past year. However, skepticism over the integrity of sustainability reporting and the prevalence of greenwashing is forcing many investors to rethink their strategies.
Responses from 350 investment decision-makers from a variety of institutions, including asset and wealth management firms, insurers, pension funds, and sovereign wealth funds, were incorporated in the survey. The findings reflect a nuanced dynamic: while demand for sustainable investment products is increasing, many investors anticipate a decrease in the incorporation of ESG factors into decision-making processes.
Although corporate sustainability information is increasingly used, nearly two-thirds of investors reported a likelihood of reducing their reliance on ESG factors. This is primarily driven by short-term concerns, with the current business cycle and trade policies such as tariffs and restrictions becoming significant influencers of investment strategies over the next two years. A massive 92% of respondents indicated that near-term risks often outweigh the long-term benefits of ESG-driven investments, underscoring a tension between immediate performance objectives and sustainable growth goals.
At the same time, sustainability is an important consideration. Most respondents indicated that they were taking into account concerns over climate change. A significant 55% said climate change was a key driver in shaping their strategies, although this was more prominent in North America and Europe.
A major obstacle to greater adoption of ESG is the perceived lack of trust in sustainability-related data. The survey showed that 85% of investors considered greenwashing, which includes misleading claims about a firm’s sustainability performance, an issue that is growing relative to five years ago. Besides, many investors are unsatisfied with the quality of sustainability reporting by corporations. While 80% argued for substantial improvements in materiality and comparability of these reports, 62% indicated a need for increased accuracy.
At this moment, when standards for sustainability reporting are evolving and redefining business disclosures, this lack of trust does not come cheap. Against this backdrop is the push from the EU and the IFRS Foundation’s International Sustainability Standards Board (ISSB) to achieve more reliable and comparable information on ESG data – frameworks like the EU CSRD and ISSB Standards. The views of the investors remain mixed about it. Only 34% of respondents find the CSRD standards well-explained to stakeholders, however, a vast majority —65% and 68%—agrees with the idea that CSRD and ISSB standards can efficiently be used in decision making related to long-term investment.
Recognizing the importance of adapting to these new frameworks, many investors are taking proactive steps. Over half of the respondents (56%) are seeking professionals with expertise in ISSB or CSRD standards, while 49% are providing staff training on these frameworks. Additionally, 45% reported investments in data management systems and technologies tailored to meet these new standards.
Dr. Matthew Bell, EY Global Climate Change and Sustainability Services Leader, and Velislava Ivanova, EY Global Strategy and Markets Leader for Climate Change and Sustainability Services, said that the survey reveals an important “say-do” gap. The investors who believe sustainability is important in general do not act accordingly. “Say-do” gaps, the report says, should be closed to redirect more capital into initiatives that deliver long-term value and tangible sustainability outcomes.
The survey underscores a pivotal moment in the evolution of ESG investment. While challenges such as short-term focus, greenwashing, and inadequate reporting persist, the introduction of robust reporting standards and increased investor efforts to adapt could pave the way for more transparent and impactful sustainable investment strategies. Recognizing sustainability as both a risk mitigator and a value driver will be key to aligning financial goals with broader societal and environmental imperatives.