Investors Ramp Up ESG Data Use but Raise Concerns Over Greenwashing and Reporting Gaps

A growing number of investors are increasing their reliance on ESG data, but concerns over the quality, comparability, and accuracy of this information persist, according to EY’s 2024 Institutional Investor Survey. The report reveals a paradox where demand for sustainable investments continues to rise while skepticism about corporate sustainability reporting intensifies.

The survey, which gathered insights from 350 global investment decision-makers across sectors including asset management, private banking, pensions, and sovereign wealth funds, found that 88% of investors increased their use of ESG data over the past year. However, nearly two-thirds indicated that their firms might scale back the use of ESG factors in decision-making, driven by an increased focus on short-term considerations.

Short-term economic factors are emerging as significant drivers for investment strategies. Nearly two-thirds of respondents cited shifts in the business cycle as the most influential factor over the next two years, while trade restrictions and tariffs were the most closely monitored macroeconomic issue by 62% of investors. Despite this short-term focus, climate change remains a key concern, with 55% identifying it as a critical driver of strategy, particularly in North America and Europe.

Investor trust in sustainability data is another central challenge. The survey found that 85% of respondents believe greenwashing has worsened over the past five years. Additionally, significant gaps in reporting quality were highlighted, with 80% of investors calling for improvements in the materiality and comparability of sustainability disclosures and 62% emphasizing the need for enhanced accuracy.

These findings arrive at a critical moment, as companies prepare to adopt new sustainability reporting frameworks such as the EU’s Corporate Sustainability Reporting Directive (CSRD) and the ISSB’s global standards. While these frameworks aim to improve reporting quality, investor sentiment remains mixed. Only 34% agreed that CSRD standards are clearly articulated to issuers and investors, though a larger proportion—65% for CSRD and 68% for ISSB—believe they are well-suited to support long-term investment decisions.

To address these challenges, investors are bolstering their capabilities to handle new sustainability data. More than half (56%) are actively seeking candidates with ISSB or CSRD expertise when hiring new staff, while 49% are providing training on the standards, and 45% are investing in technology and systems to manage the influx of ESG data.

The survey underscores an emerging “say-do gap” among investors, where stated commitments to sustainability do not always align with actions. Dr. Matthew Bell, EY’s Global Climate Change and Sustainability Services Leader, noted that bridging this gap is critical for achieving long-term sustainability goals. “Closing the say-do gap is vital because it allows sustainability to be recognized not just as a portfolio risk, but as a major value driver of investment strategies,” Bell said.