Trust is a very important factor to 67% of institutional investors when selecting a company to invest in, according to a newly released Edelman Trust Barometer Special Report: Institutional Investors. Trust superseded other key factors, such as current valuation vs. peer companies, ability to meet financial guidance, and providing forward-looking financial guidelines, all of which 63% of investors cited as very important.
Further, with almost half of those surveyed believing the bull market will end in the next year and 98% believing public companies are “urgently” obligated to address one or more societal issues, such as cybersecurity, income inequality or workplace diversity, companies need to step up their social responsibility to gain investor trust, the survey found.
In fact, 89% of the 500 portfolio managers, chief investment officers and analysts surveyed from the United States, Canada, the United Kingdom, Germany and Japan stated their firm has changed its voting and/or engagement to be more attuned to ESG risks, with 63% stating the change was made in the last year.
Also, the importance of corporate governance has caught up to environmental and social issues. Of those surveyed, 58% found corporate governance “very important” to their trust, vs. 58% environmental and 64% social. Interestingly, various countries have hot buttons: 73% of German investors surveyed found environmental factors most important, 72% of Canadian investors believed social responsibility was most important, while 74% of Japanese investors thought governance was most important.
Overall, 95% of institutional investors stated that maintaining a healthy corporate culture has an impact on their investment decisions, while 65% of those said it has a “great deal of impact.” Likewise, enforcing the corporate code of conduct at all levels has an impact on 95% of investors, with 65% stating it has a “great deal of impact” on investment decisions.
Other factors that affect trust include the long-term outlook of a company, beginning with 42% supporting a shift from quarterly to bi-annual earnings disclosures. Ninety-six percent stated that the long-term outlook of a company impacts their decisions, with 66% stating it has a “great deal of impact” on their trust.