2021 EY Global Institutional Investor Survey

Three-quarters of institutional investors globally say they may divest from companies with poor environmental track records – 2021 EY Global Institutional Investor Survey.

A burgeoning number of institutional investors around the world are placing greater emphasis on ESG performance in their decision-making and 74% are now more likely to divest from companies with poor ESG track records. However, concrete action is still lacking, and there is an urgent need for better quality disclosure from companies, according to the 2021 EY Global Institutional Investor Survey.

The report, now in its sixth year, canvasses the views of 320 institutional investors across 19 countries [1] including 15 respondents from India. It shows that 90% of investors say they now attach greater importance to ESG performance in their decision-making than they did before the COVID-19 pandemic; and that 92% say they have made decisions over the past 12 months based on the potential benefits of a “green recovery”.

There are also clear intentions among the majority of investors to look more closely at ESG risks across their portfolios and investment targets in the future. More than three- quarters (77%) of those surveyed say that, over the next two years, they plan to step-up their analysis of “physical” risks – the impact of climate change on a business’ ability to provide its products and services. This is an increase from 73% in 2020. Similarly, 80% will be doing more to evaluate “transition” risks – which are the market impacts that might result from the move to a low carbon economy – up from 71% in 2020.

The survey shows that institutional investors are taking some steps to establish whether companies are able to deliver on ESG goals. Respondents say they look at several factors when making investment decisions, including whether there is an ESG representative – such as a Chief Sustainability Officer – reporting directly into the CEO and executive team (53%); whether organizational culture is aligned with ESG goals (52%); and whether the company has independent assurance for its ESG reporting (48%). However, only 42% worry about whether boards have oversight of ESG performance, or whether executive compensation is tied to it.

Marie-Laure Delarue, EY Global Vice-Chair – Assurance, said, “It’s clear that the COVID-19 pandemic has spurred investors to place more emphasis on ESG performance. There are positive signs that this is starting to translate into action, although both companies and investors need to take bolder steps to put ESG performance right at the center of their decision-making.

“But it is also clear that the road ahead is too long, given the expectations of society, and that real progress requires the involvement of investors and companies, alongside auditors, standard setters and regulators. We all need to be at the table.”

Chaitanya Kalia, EY India Climate Change and Sustainability Services Leader added, “ESG performance is gaining pace in India with Business Responsibility and Sustainability Reporting (BRSR) mandatory for listed companies starting FY23. It is therefore key for investors and businesses to keep ESG and sustainability at the centerstage of their overall organizational agenda, helping them analyze and enhance the non-financial performance of their businesses.”

Despite the sharpened focus on ESG performance and ambitions to do more, the survey shows that institutional investors have been relatively slow to make concrete changes to the way they operate. Just 49% have taken action to update their investment approaches and only 44% have revamped their risk management strategies. Only 44% believe that they have a “highly mature” approach in relation to climate risk.

Many investors are concerned about the quality and transparency of ESG reporting on the part of the companies that they consider. Half of those surveyed (50%) say they don’t believe companies are reporting adequately on financial material issues. That is a marked increase from 37% in 2020.

However, there is a clear hope that the introduction of global standards will help on this front – and 89% of the investors surveyed say they want these standards to become mandatory.

[1]. Countries surveyed include Australia, Brazil, Canada, China, Denmark, France, Hong Kong, India, Japan, Mexico, Netherlands, Norway, Singapore, South Africa, South Korea, Sweden, UAE, UK and the US.

India retains 3rd position in renewable energy investment attractiveness index:EY

India has retained the third rank in the Renewable Energy Country Attractiveness Index released by consultancy firm EY. India remained at the third position in the 58th edition of EY’s ‘Renewable Energy Country Attractiveness Index’ (RECAI), which ranks the world’s top 40 markets (nations) on the attractiveness of their renewable energy investment and deployment opportunities, according to an EY statement released in October.

With the environment, social and governance (ESG) measures soaring to the top of the agenda for companies and investors, RECAI also highlights that corporate power purchase agreements (PPAs) are emerging as a key driver of clean energy growth, it added.

A new PPA Index – introduced in this edition of RECAI – focuses on the attractiveness of renewable power procurement and ranks the growth potential of a nation’s corporate PPA market. India is ranked sixth among the top 30 PPA markets.

India’s thriving renewable energy market conditions, inclusive policy decisions, investment and technology improvements focusing on self-reliant supply chains have pushed the clean energy transition to new heights, the statement said.

However, it said that the sector must be careful to navigate bottlenecks that could threaten continued rapid growth. The EY report reveals that the drive to integrate increasing volumes of variable resources is set to put grid infrastructure under significant strain, and the investment required to upgrade and expand energy transmission infrastructure across the globe will be a key challenge.

Somesh Kumar, Partner and National Leader, Power & Utilities, EY India, said, “In August 2021, India witnessed a watershed moment in combating the climate crisis. The total installed renewable energy capacity (excluding large hydro) crossed the milestone of 100 GW”.

According to the report, the US, mainland China and India continue to retain the top three rankings and Indonesia is a new entrant to the RECAI. The US continues its top ranking on RECAI and is expected to hold its position as new initiatives are being announced under President Joe Biden.

Mainland China and India remain unchanged in the ranking at second and third position, respectively, as favourable regulatory and investment conditions continue in these markets, it said. The top-performing markets have held their ground in this latest issue – with no movement into or out of the top eight.

France (fourth position, up by one) and the UK (fifth position, down by one), while Germany (sixth position, up by one) has edged back ahead of Australia (seventh position, down by one) after its onshore wind market had a fruitful first half of 2021, with 971MW added, marking a 62 per cent rise from the first half of 2020, it stated.

Also, under the spotlight are policy support and notable government auction rounds for Greece, Spain, Taiwan and the UK. The Philippines (27th position, up by four) has moved up the ranking with an indicated target of achieving 35 per cent renewable energy by 2030, while also setting out its offshore wind road map, it added.