Trust is collapsing in America, and across virtually all levels and institutional ecosystems—and comms giant Edelman reports this trust-building urgency for public companies in its new Edelman Trust Barometer Special Report: Institutional Investors, revealing new criteria for evaluating investments as well as insights on what drives institutional investor trust in companies.
The second annual special report finds that investment criteria are evolving to target areas beyond financial metrics, with a strong focus on corporate culture, Environmental, Social and Governance (ESG) investing, and companies’ roles within broader society.
“A new set of investment criteria is emerging as investors take into account longer-term considerations for what drives company valuation,” said Lex Suvanto, global managing director of Financial Communications & Capital Markets at Edelman, in a news release. “Environmental and social considerations are now as important as governance, and the health of a company’s corporate culture is becoming a meaningful investment factor. In addition, investors expect companies to take a stand on social issues that are important to maintaining a healthy business environment.”
Key highlights of the report include:
Investor ESG focus is now pervasive
Eighty-nine percent of respondents say their firm has changed its voting and/or engagement policy to be more attentive to ESG risks, and 63 percent report that this change has taken place in the past year.
Environmental and social practices matter as much as governance
Around the world, respondents strongly agree that environmental and social practices are as important as governance when it comes to investment criteria.
Companies should expect all investors to be activists
Eighty-seven percent of institutional investors say their firms are more interested in taking an activist approach to investing and 92 percent will support a reputable activist investor if they believe change is necessary at a company in which they invest or they recommend investing.
Corporate culture is now an investment criterion
Investors now recognize the impact that healthy culture and engaged employees have on corporate performance. 65 percent of investors say that maintaining a healthy company culture and enforcing a corporate code of conduct at all levels of the company have a great deal of impact on their trust.
Nearly all investors believe companies have an urgent obligation to take a stand on societal issues
Ninety-eight percent of investors think public companies are urgently obligated to address one or more societal issues, with cybersecurity, income inequality, and workplace diversity being top priorities. Investors are relying on corporations to address issues that are shaping the business and political environments.
Management does not fully control the company’s narrative
While a company’s CFO is ranked as the most credible source of information, a wide spectrum of voices both internally and externally, including business/financial academics and experts as well as regulatory agencies, are also viewed as highly credible sources of information.
The political climate is changing investment strategies
Eighty-eight percent of institutional investors agree that the current political climate is changing their firm’s investment strategy, and 89 percent of investors also agree that trade risks are changing their firm’s investment strategies. In addition, 85 percent of investors agree most companies do not fully acknowledge the new risks to their business from the political climate.
The reputation of a Board of Directors directly impacts investor trust
Ninety-four percent of investors agree they must trust a company’s Board of Directors before making or recommending an investment. 92 percent of investors say access to the Board of Directors is important when considering an investment and 95 percent say an engaged and effective Board is important.
Digital is utilized to inform the investor decision process
Ninety-eight percent of investors use social platforms, such as LinkedIn and Twitter, to inform investment decisions on a weekly basis. 86 percent of investors say they consult a company or an executive’s social media channels when evaluating a current or prospective investment.
Having a long-term outlook is critical to trust
Ninety-six percent of investors agree providing long-term guidance on financial performance impacts trust.
Investors believe the bear market is looming
Nearly half of investors believe that the bull market will come to an end in the next year and 81 percent believe it will come to an end in the next two years.
The Edelman Trust Barometer Special Report: Institutional Investors is based on an online quantitative survey of 500 institutional investors in the U.S., Canada, UK, Germany and Japan. Participants included portfolio managers (39 percent), chief investment officers (29 percent), financial analysts (26 percent), directors of research (4 percent) and ESG analysts (1 percent). Respondents represent firms which manage assets ranging from less than $500 million to more than $50 billion USD. Data Fieldwork was conducted by Edelman Intelligence between September 9 – October 22, 2018.