The ESG Gap Revealed in Fidelity’s Deep Dive
Highlights:
- Companies exaggerate ESG achievements
- 60% not on net-zero track
- Technology gap hampers climate goals
- ESG focus increases in companies
- Collective effort needed for sustainability
In a recent study by investment manager Fidelity International, approximately 60% of analysts expressed doubt over the ESG (Environmental, Social, and Governance) claims made by companies they monitor. These analysts find a disparity between companies’ promoted ESG credentials and their actual deeds.
The “2023 Fidelity International ESG Analyst Survey” comprised inputs from 123 in-house analysts, spanning various teams like Equities, Fixed Income, and Sustainable Investing. Their findings were based on roughly 15,000 interactions with companies.
The survey brought to light some critical insights. Companies seem to be emphasizing ESG factors more, with many intertwining sustainability elements with remuneration and even introducing board-level oversight. Yet, many of these companies aren’t progressing towards their sustainability aspirations as speedily as one might hope.
It’s noteworthy that while a considerable number of multinationals in developed nations have pledged to reach net-zero targets, less than 60% are truly on the path to achieve this by 2050. European firms appear to be leading this endeavor with 69%, while their North American counterparts lag at 53%. Analysts’ confidence in companies achieving net-zero by 2030 has seen a dip compared to the previous year. This is especially evident in regions like Europe and Japan. However, North America and China showed slight improvement.
This decline in optimism can be attributed to the global economic downturn, forcing businesses to prioritize immediate outcomes over long-term environmental considerations. Ming Gong, a Fidelity analyst, remarked on the challenges facing his sector in China, observing that numerous companies, whether on the brink of default or deeply stressed, are relegating ESG to the back burner.
Another hurdle on the path to sustainability is the technological void. Analyst Laura Stafford highlighted that many aiming for net-zero by 2050 don’t possess a comprehensive strategy, primarily because the necessary technology isn’t readily available yet.
Still, it’s not all gloom. The study found a heightened ESG focus in companies. Over 50% of analysts reported that management’s pay is now intertwined with emission objectives, and a significant 60% of firms have ushered in board-level sustainability oversight.
However, a lingering concern is the perceived exaggeration of ESG accomplishments. Almost 60% of analysts feel companies present a rosier ESG image than their actions warrant. This is especially pronounced in the Energy sector.
Jenn-Hui Tan, of Fidelity International, emphasized the pressing need for collective action. He pointed out the essential roles of governments, policy-makers, and the financial sector in bridging the chasm between ambition and actuality
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