Most institutional investors demand public companies address environmental, social and governance issues to be regarded as trustworthy, said a survey released by Edelman.
Results of the second annual Edelman Trust Barometer Special Report: Institutional Investors show that 89% of investors have changed their voting and/or engagement policy to be more attentive to ESG practices, with 63% reporting that this change has taken place in the past year.
"It's plain as day that ESG is a major criteria for investors," said Lex Suvanto, Edelman's global managing director, financial communications and capital markets, in a phone interview. "It's no longer optional."
Mr. Suvanto added: "This is a meaningful shift within the investment community in terms of a critical mass being reached. And it will have a huge impact on companies — they have to respond to this interest from the investment community."
In addition, 87% of institutional investors said their firms are more interested in taking an activist approach to investing and 92% will support a reputable activist investor if they believe change is necessary at a company in which they invest or recommend investing.
The survey also reveals that corporate culture is now a major investment criterion for investors, with 65% saying that a healthy company culture and enforcing a corporate code of conduct at all levels of the company will greatly impact their trust.
"Corporate culture is now emerging as a real investment criterion," said Mr. Suvanto, noting that investors are looking at the potential risk of a CEO being thrown out or business trends going south because of poor corporate culture. "That's an intangible item that you can't put in a model."
Nearly all investors — 98% — believe that companies have an urgent obligation to take a stand on societal issues, such as cybersecurity, income inequality and workplace diversity. Investors are relying on corporations to address issues that are shaping the business and political environments.
In addition, 94% of investors believe they must trust a company's board before making or recommending an investment. Meanwhile, 92% of investors said access to the board is important when considering an investment, and 95% said an engaged and effective board is important.
More than 500 global chief investment officers, portfolio managers and buy-side analysts representing more than $4.5 trillion in assets under management were surveyed.
