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NEW YORK — Edelman today announced the findings of new proprietary research of 600 institutional investors in six countries representing firms that collectively manage over $9 trillion in assets under management. The 2019 Edelman Trust Barometer Special Report: Institutional Investors identifies pivotal issues shaping investment criteria and how companies can build trust with the investment community. This year’s research reveals that investors believe companies must address the needs of a wide range of stakeholders, not just shareholders, and must implement effective environmental, social-impact and governance (ESG) practices to win their trust.
“We are entering a new era when ESG factors are an important investment criteria for shareholders,” said Lex Suvanto, global managing director, Financial Communications & Capital Markets at Edelman. “Investors are now acutely focused on how employees and other stakeholders can impact the valuation of companies in which they invest. Companies that excel in driving ESG factors will gain a clear advantage in winning investor trust and supporting a premium valuation. Investors believe that companies that fail to do this will be responsible for consumer or employee activism.”
“In addition, companies must get ready for more questions and more attention from investors on ESG topics. A majority of investors are hiring more ESG staff and changing their voting and engaging policies to be more attentive to ESG risks. Boards of directors in particular must be ready to engage with shareholders on these topics, a clear break from the conventional approach of keeping boards of directors behind closed doors.”
Key highlights of the Edelman Trust Barometer Special Report: Institutional Investors include:
Investors agree that corporations need to have multi-stakeholder commitment
Eighty-four percent of respondents said maximizing shareholder returns can no longer be the primary goal of corporations and that business leaders need to commit to balancing the needs of shareholders with customers, employees, suppliers and local communities.
Investors are investing more in ESG-excelling companies
More than half of investors believe that ESG practices positively impact trust, with 61 percent having increased their investment allocation to companies that excel when it comes to ESG factors.
Data privacy and cybersecurity, employee health and safety, and eco-efficiency are the top priorities for shareholder engagement in the next 6 months. Ninety-nine percent of respondents expect the Board of Directors to oversee at least one ESG topic.
Investors are changing their voting and engagement policy to be more attentive to ESG
87 percent of respondents said that their firms have changed their voting and/or engagement policy to be more attentive to ESG risks and 56 percent of investors globally are hiring more ESG-focused staff. Eighty-six percent of investors would consider investing with a lower rate of return if it meant investing in a company that addresses sustainable or impact investing considerations.
Investors believe Board diversity should be multi-dimensional, with diverse business areas of expertise being most desired
Fifty-five percent of respondents said that diversity within a company’s board has a significant positive impact on trust. Investors prioritize the following aspects of board diversity: business areas of expertise (59 percent), business strategy philosophies (53 percent) and experience outside the industry or sector (52 percent), gender (21 percent), ethnicity (21 percent) and race (18 percent).
Employee activism makes a company a less attractive investment
Investors recognize the impact that healthy culture and engaged employees have on corporate performance, with 74 percent seeing companies with activist employees as less
attractive investments. Furthermore, 79 percent believe companies are not prepared for employee activism. Investors assess corporate culture by speaking with senior leadership and employees at all levels throughout the organization.
Companies are unprepared for shareholder activism because they fail at identifying emerging risks
Seventy-nine percent of respondents stated that most companies are not prepared to handle activist campaigns, with the main issue an inability to define and specify new and emerging areas of risk and value creation, including cybersecurity, ESG and technological innovation.
Social media content matters
Ninety-six percent of investors use one or more social platforms on a weekly basis. When evaluating a current or prospective investment, 82 percent of investors consult the company’s social media channels and 79 percent of investors consult company executive social media channels.
When a company is in distress, it’s back to basics
Top strategies for underperforming companies to shore up trust with investors include announcing a change to business strategy (52 percent), conducting a business or strategic review process (51 percent) and implementing significant cost cuts (46 percent). Increasing transparency and engaging with shareholders can also help to maintain investor trust.
About Edelman Trust Barometer Special Report: Institutional Investors
The Edelman Trust Barometer Special Report: Institutional Investors is a supplement to the Edelman Trust Barometer, which is released annually at the World Economic Forum each January. This year’s report surveyed 600 institutional investors, including financial analysts, chief investment officers and portfolio managers across six countries (U.S., Canada, U.K., Germany, the Netherlands and Japan).
About Edelman’s Financial Communications Practice
Edelman Financial Communications & Capital Markets is a boutique strategic consultancy with the reach and resources of a leading global communications marketing firm. We advise public and private companies on strategic and capital markets communications to help effectively position them with the financial community during transformative events as well as during the normal course of business.
Clients choose to work with us because of our specialized and experienced financial communications team, our ability to provide the full range of Edelman’s services (such as digital and social media, public affairs and employee engagement) as well as our ability to access Edelman’s global network with more than 65 offices around the world.
Edelman is a global communications firm that partners with businesses and organizations to evolve, promote and protect their brands and reputations. Our 6,000 people in more than 60 offices deliver communications strategies that give our clients the confidence to lead and act with certainty, earning the trust of their stakeholders. Our honors include the Cannes Lions Grand Prix for PR; Advertising Age’s 2019 A-List; the Holmes Report’s 2018 Global Digital Agency of the Year; and, five times, Glassdoor’s Best Places to Work. Since our founding in 1952, we have remained an independent, family-run business. Edelman owns specialty companies Edelman Intelligence (research) and United Entertainment Group (entertainment, sports, lifestyle).