Nearly nine out of ten investors report that they have increased their use of ESG data over the past year, yet trust in that data appears to be lacking, with a large majority also believing that greenwashing by companies is a worsening problem, and most seeking improvements in sustainability reporting by companies in areas including materiality, comparability and accuracy, according to a new survey released by global professional services firm EY.

For the report, the EY 2024 Institutional Investor Survey, EY surveyed 350 investment decision-makers globally, across asset management firms, wealth management firms, private banks, insurers, pension funds, family offices, foundations, endowment funds and sovereign wealth funds.

The report found that as companies are increasingly providing corporate sustainability reporting, investors are ramping their use of this information, with 88% of respondents reporting an increase in the use of ESG data over the past year.

Despite the increased use of ESG information, however, the report also found that nearly two thirds of investors believe that their firms would be likely to decrease their use of ESG factors in decision-making, with attention turning to more near-term factors. Notably, the forecast decline in ESG considerations comes despite a reported growth in demand for sustainable investments, with 74% of asset managers reporting growth in client interest in ESG-related investment products over the past year, and 77% reporting an increase in their development of sustainable investment products.

Among the key factors contributing to the expected decline in ESG considerations was an apparent shift in focus to short-term factors, with nearly two thirds of investors reporting that shifts in the business cycle is the factor most likely to affect investment strategies over the next two years, with trade restrictions and tariffs cited as the most closely-followed macro factor, by 62%. As short-term issues remain top of mind, however, 92% of investors agreed that the risk to near-term performance outweighs the long-term benefits of many ESG-related investments and initiatives, the survey found.

Sustainability-related issues will still likely be closely followed, however, with the impact of climate change as the second-most cited factor affecting investment strategies at 55%, according to the report. Notably, the survey also found that investors in North America and Europe were much more likely to view climate change as a driver of investment strategies, compared with their peers in other regions.

Another key factor appearing to affect investors’ near-term focus on ESG factors was an apparent lack of trust in sustainability-related information and reporting provided by companies. According to the survey, for example, 85% of investors report that greenwashing and similar misleading statements about company sustainability performance is a greater problem than it was 5 years ago. Additionally, 80% of investors said that both the materiality and comparability of companies’ sustainability reporting is in acute or substantial need of improvement, and 62% said the same of the accuracy of sustainability reporting.

The survey’s findings come as many companies will soon be required to provide sustainability reporting based on new standards and frameworks designed to address these issues, such as the EU’s Corporate Sustainability Reporting Directive’s (CSRD) European Sustainability Reporting Standards (ESRS), and the IFRS Foundation’s ISSB standards.

The survey found that investors have a mixed view on these new sustainability reporting standards, with only 34% of respondents agreeing that the CSRD standards are clearly articulated to issuers and investors, although 65% and 68% believe that the CSRD and ISSB standards, respectively, are well suited to support long-term investment decision-making.

As the new reporting standards approach, the survey also found that investors are investing in their abilities to use the new sustainability information they will be receiving, with 56% of respondents reporting that they are seeking candidates with ISSB or CSRD expertise when hiring new staff, 49% saying that they are providing training on the standards, and 45% reporting that they are investing in data management, technology and systems that are focused on ISSB or CSRD.

In the report, Dr. Matthew Bell, EY Global Climate Change and Sustainability Services Leader, and Velislava Ivanova, EY Global Strategy and Markets Leader, Climate Change and Sustainability Services, write that the survey indicates an emerging “say-do” gap — where what investors say about sustainability is not backed up by what they do in practice,” adding:

“Closing the say-do gap is vital because it is expected to result in more capital being allocated to projects that make a positive difference over the long term. Additionally, it allows sustainability to be recognized for what it is — not just a portfolio risk, but equally importantly, a major value driver of investment strategies.”

Click here to access the survey.