We have witnessed an explosive growth of interest towards Environmental, Social and Governance (ESG) in recent years – and we wanted to know more about the current practices and challenges sustainable investors encounter. As an ESG reporting software, we found ourselves in the center of it all and decided to reach out to our extended networks and ask!
Today, we’re happy to announce the first of its kind: our pulse-study on The state of sustainable investments! Feel the pulse on what part sustainability really plays in the field of private equity (PE) and venture capital (VC) investing – and find out if you’re keeping up with the new normal in the sustainable investing landscape. In this blog, we’ve gathered the key takeaways for a quick rundown of the report.
Download our free report to learn more about the current state of Sustainable Investments.
What did we find out?
The survey revealed that sustainability is a priority for many investors and that a majority tracks ESG metrics in their investment portfolio. Still, 58% have difficulties collecting ESG data.
In addition, many experience a lack of uncertainty on how to align with mandatory regulations such as the SFDR and the EU Taxonomy. As many as 3/5 of the respondents answered that they don't know which SFDR-article they are assigned to or will assign to.
This may come as a surprise as these regulations are already put in force for FMPs operating in the EU. As such, this indicates that there’s a strong need for bringing investors up to speed on how to ensure successful compliance. The goal of our report is to get a glimpse of the needs of investors – so they can successfully drive the sustainability transformation forward!
Key findings on the current state of Sustainable Investments
- 3/5 See tracking sustainability as a way to reach a higher ROI.
- 73% Look at ESG performance before investing in a company.
- 58% Have difficulties collecting ESG data.
- 7/10 Have an internal resource working with ESG.
The process
1. Reporting on a quarterly basis is becoming more common
37% answered that they disclose their ESG performances on a quarterly basis. This indicates that companies are placing sustainability data as a high priority, perhaps due to the high demand for transparency from stakeholders.
2. Manual follow-ups are still in the game
While sustainability and ESG reporting softwares are becoming more common, most of the respondents (65%) answered that they’re still relying on mail and familiar spreadsheets as Excel for collecting their supplier data. However, 1/3 felt overwhelmed by reporting due to the amount of stakeholders involved. As our panel agreed upon in our latest Navigating the landscape of sustainability reporting webinar, spreadsheets are brilliant when they work, but the more –the trickier.
The Challenges
To find out more about the biggest challenges investors are facing when evaluating and managing ESG data, we asked the respondents to choose the challenges they most relate to. The results are as follow:
What are the main challenges in Sustainable Investments?
- Difficulties collecting data 58%
- Poor data quality 50%
- Lack of time 37%
- Lack of tools 37%
- Lack of budget 24%
- Difficulties gaining insights 21%
- Unsure of what data to collect 18%
- Low engagement from portfolio companies 18%
- Lack of knowledge about the topic 13%
- Low / no incentive to report 13%
- Low response rate 11%
- Low engagement from own organization 8%
The Frameworks
1. The GHG protocol is the new normal
Approximately 66% of respondents said that they follow up or are about to start following up on the emissions of their portfolio companies with the help of the GHG protocol. As the global economy is recovering after the pandemic, we were delighted to see that the financial sector is taking progressive action to make sure that the pre-pandemic GHG emission level won’t rebound along with the economy.
2. Confusion surrounding the SFDR and EU Taxonomy
Unfortunately, the report made it clear that there’s still a lack of clarity on what is expected for the FMPs affected by the SFDR and the EU Taxonomy. Almost half (44%) of the respondents answered that they only have low or very low knowledge about the SFDR – and only a few (16%) claimed to have excellent knowledge on the subject. The conclusion? We see that there's a need for more education on the subject – and preferably in a digestible format!
Sustainable investments are accelerating – and the demand for ESG disclosure is higher than ever. But the process is no walk in the park, and many are still experiencing difficulties, such as collecting important and qualified data. To sum it up, there’s still a gap between the intention to and working integrated with ESG to bridge. Fortunately, there is help to be claimed. Explore Worldfavor’s sustainable investment solution and book a personal demo with one of our ESG specialists.
