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Institutional investors made a gargantuan splash at the COP26 summit in Glasgow, Scotland, with their intentions to put mountains of money to work pushing the world toward the goal of net-zero carbon emissions.

But they have a problem – the grand ambition relies on the companies in which they invest developing and sticking to credible environmental, social and governance plans, with climate strategies being paramount. As it stands, big investors have very little confidence in them, a new survey has found.

Around the world, 82 per cent of institutional investors, such as pension funds, insurers and asset managers, believe companies frequently exaggerate or overstate their progress on ESG initiatives, according to public relations firm Edelman, which polled 700 analysts, portfolio managers, chief investment officers and others.

There’s a little more trust among Canadian investors, but not much. Seventy-seven per cent doubt corporate ESG claims. Seven out of 10 do not believe companies will achieve their stated net-zero pledges.

These stats put in stark light the struggle that lies ahead for global investors as they rejig their portfolios toward carbon neutrality by 2050. Before they put money behind a company’s decarbonization plans, they have to believe in them.

Edelman, known for its annual Trust Barometer of the public’s views of various societal institutions, such as business and the media, has surveyed the opinions of large investors for the past five years, and the level of interest in ESG-related topics has grown steadily.

Greatest investor doubts

Per cent of investors who lack full confidence in the

accuracy of ESG information that companies disclose

to them on each of the following topics, Canada

Progress against its diversity and inclusion goals/pledges

71%

Greenhouse gas emissions

69%

Executive-worker wage gaps

67%

Employee health and safety

66%

Accountability communicating risk

66%

Responses to accusation of unethical conduct

62%

Effective management of climate risk

61%

THE GLOBE AND MAIL, SOURCE: edelman

Greatest investor doubts

Per cent of investors who lack full confidence in the

accuracy of ESG information that companies disclose

to them on each of the following topics, Canada

Progress against its diversity and inclusion goals/pledges

71%

Greenhouse gas emissions

69%

Executive-worker wage gaps

67%

Employee health and safety

66%

Accountability communicating risk

66%

Responses to accusation of unethical conduct

62%

Effective management of climate risk

61%

THE GLOBE AND MAIL, SOURCE: edelman

Greatest investor doubts

Per cent of investors who lack full confidence in the accuracy of ESG information that companies

disclose to them on each of the following topics, Canada

Progress against its diversity and inclusion goals/pledges

71%

Greenhouse gas emissions

69%

Executive-worker wage gaps

67%

Employee health and safety

66%

Accountability communicating risk

66%

Responses to accusation of unethical conduct

62%

Effective management of climate risk

61%

THE GLOBE AND MAIL, SOURCE: edelman

“This is the first year where we’ve really seen this healthy level of skepticism creep into the data, where investors are saying, ‘We are watching for greenwashing more closely now and we are digging into ESG-related disclosure with the same rigour as operational and financial disclosure,’” said David Ryan, managing director of Edelman Smithfield, Canada.

The data, gathered from surveys of institutional investors in seven major markets, all show the same wariness of corporate ESG claims. One likely reason is snowballing demand among individual investors for ESG funds, Mr. Ryan said.

“There’s more at stake for asset managers and people who are developing ESG-related products, so they need to make sure the information and disclosure they’re getting from companies they invest in is accurate,” he said.

In Scotland this month, institutions managing assets worth US$130-trillion, known as the Glasgow Financial Alliance for Net Zero, pledged to restructure their holdings and push companies within them to achieve carbon neutrality.

The group has enough financial might to make the investments necessary to keep the global temperature rise to 1.5 C above preindustrial levels, Mark Carney, former governor of the Bank of Canada and Bank of England, said at the summit. He was instrumental in forming the 450-member alliance.

Only a small fraction of those assets are currently geared to the net-zero target, so what they are proposing is a drastic overhaul of the global economy – pushing high-carbon industries to sharply reduce emissions and directing as much as $100-trillion to investments in green energy and clean technology.

Edelman conducted its survey before COP26, but the results show the tension that exists, not just between climate activists led by the likes of Greta Thunberg, but also between investors and companies that seek their capital. “Very clearly, they’re digging into this because their reputations are at stake, too,” Mr. Ryan said.

Of the Canadian investors that have little confidence in ESG claims, cynicism directed at companies is high in both stated progress toward emissions reduction and effective management of climate-related risk to businesses, among other sustainability claims.

It’s clear companies that want funding for expansion have to find ways to bolster their credibility in this arena, or as some have found, could face activist investors who will force the issue. Indeed, 73 per cent of investors surveyed believe companies that have set up a credible net-zero plans deserve a premium valuation.

“Companies need to set measurable and obtainable goals with respect to ESG, and that includes climate change initiatives and net-zero pledges,” Mr. Ryan said. “And with respect to disclosure communicating their ESG initiatives, they need to take the same rigour and process that they do with their financial and operating progress, because that is the expectation of their investors.”

Jeffrey Jones writes about sustainable finance and the ESG sector for The Globe and Mail. E-mail him at jeffjones@globeandmail.com.

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