ESG Disclosures are Starting to Align with Investor Demands as Companies Become More Accountable and Ambitious in Setting Targets
- Majority of corporates (57 percent) accelerate green transformation plans as a result of the pandemic
- Less than one in 10 companies currently link executive compensation to ESG targets; 62 percent of companies will do so for environmental targets in 2021
- 72 percent of investors say they are increasing ESG outcome ambitions in their portfolios
- Social bond momentum to continue with half of corporates likely to issue a social bond in the next 12 months
NEW YORK, LONDON and SINGAPORE, April 7, 2021 /PRNewswire/ -- A new global survey of companies and institutional investors commissioned by ING shows the COVID-19 pandemic as a 'white swan' moment, which has accelerated the majority of companies' green transformation plans. At the same time, investors are demanding more hard environmental targets be put in place by companies. Despite this, companies, investors, and governments must move faster and further in making environmental, social and governance (ESG) progress as the pandemic raises the bar for ambition.
According to the new report, 'Now or never: A new bar for sustainability', 57 percent of companies say they are accelerating green transformation plans, and 62 percent will likely tie executive compensation to environmental targets in 2021. Currently, less than one in 10 companies in the survey have linked executive compensation to ESG targets. From the investors surveyed, 74 percent have increased commitments for portfolio alignments to the goals of the Paris Climate Agreement and 72 percent are adopting more ambitious targets for sustainability outcomes of ESG investment.
"The pandemic has demonstrated that individuals, companies, investors, and governments can make rapid environmental and social changes for the good, but closer alignment is necessary to rapidly accelerate progress in addressing the climate crisis," said Gerald Walker, Chief Executive Officer for ING Americas. "Our actions are under the microscope like never before and as the report shows, coordinated action and convergence on areas such as ESG standards and policy are essential for accountability and meeting ambitious targets."
The ING report surveyed executive and senior management respondents about their organization's ESG priorities, how they are embedding accountability for progress and performance, and the evolving influence of capital markets on sustainable transition. The findings include:
Companies elevate the 'S' in ESG, with 50 percent expecting to issue a social bond in the next 12 months
Employee health and wellbeing (33 percent) will take precedence for corporates over the next year, even ahead of emissions reduction (30 percent). Investors cite this as a top ESG priority too, behind only climate and sustainable supply chains. Furthermore, over 80 percent of companies across each region expect new government sustainability policies to intensify action on improving access to healthcare, significantly more than any other area, including renewable energy projects. Momentum behind social bond issuance and subscription rates is set to continue over the next 12 months with, 50 percent of corporates likely to issue a social bond in this time frame.
Asia-Pacific (53 percent) and North American (51 percent) respondents are more likely to issue a social bond in the next 12 months than European (44 percent) respondents. Despite short-term momentum on social issues, only 17 percent of investors would like to see companies making more externally focussed social targets a top priority; investors see more ambitious environmental targets as a bigger priority (38 percent).
62 percent of companies have effectively integrated ESG information within corporate reporting, but better alignment with investor demands is needed
73 percent of those that had issued sustainable finance instruments in the past say the process improved their ability to put robust metrics in place and 62 percent say ESG information is strongly integrated within corporate reporting. However, when it comes to disclosure, there are still misalignments between information being reported by companies and information investors believe is most material. The top challenges for companies trying to improve ESG accountability are the lack of common industry standards and integrating ESG issues with financial targets.
European (45 percent) companies highlighted the chopping and changing of ESG KPIs as the most significant challenge in improving ESG accountability, in comparison to North America and Asia-Pacific (34 percent each).
66 percent of companies say expansion and innovation in the sustainable finance market improves relevance and accessibility
The industry saw an expansion of different financing instruments, including social bond issuances, with 66 percent of companies saying the expansion of the sustainable finance market makes it more relevant and accessible for them. Companies cite the strongest appetite to issue social bonds over any other sustainability financing instrument, except for European companies where there is a marginally stronger appetite to issue green bonds over social. First-time issuers view sustainability-linked financing as a way to test the market and learn from the process, value, and data.
European investors (49 percent) have by far strongest appetite for sustainability-linked instruments compared to North America (26 percent) and Asia-Pacific (13 percent). Investor appetite for transition bonds is reversed with stronger appetite in Asia Pacific (47 percent) and North American (40 percent) in comparison to Europe (17 percent).
"Over the past 12 months we have seen a mentality shift whereby companies were initially taking some steps but are now taking a much more accelerated approach to sustainability. The role of capital markets is pivotal in ensuring this approach continues, providing increased transparency around measurement and ensuring sustainability is embedded with corporate strategy," said Leonie Schreve, Global Head of Sustainable Finance for ING. "The expansion of the sustainable finance market as evidenced by the growth in sustainability-linked instruments is vital in making sure no company with strong ambitions is excluded from being able to transition to a sustainable business."
Longitude, a division of the Financial Times Group, surveyed institutional investors and corporates.
450 corporates were surveyed across seven sectors, split evenly across Europe, the US, and Asia-Pacific.
100 institutional investors were surveyed, including pension funds, insurers, family offices, and sovereign wealth funds, across Europe (35), the US (35), and Asia-Pacific (30).
ING is a global financial institution with a strong European base, offering financial services. The purpose of ING is empowering people to stay a step ahead in life and in business. ING's more than 57,000 employees offer retail and wholesale banking services to customers in over 40 countries.
ING Group shares are listed on the exchanges of Amsterdam (INGA NA, INGA.AS), Brussels and on the New York Stock Exchange (ADRs: ING US, ING.N).
Sustainability forms an integral part of ING's strategy, evidenced by ING's leading position in sector benchmarks by Sustainalytics and MSCI and our 'A-list' rating by CDP. ING Group shares are included in major sustainability and Environmental, Social and Governance (ESG) index products of leading providers STOXX, Morningstar and FTSE Russell. In January 2021, ING received an ESG evaluation score of 83 ('strong') from S&P Global Ratings.
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