Institutional Investor Survey 2021
Posted by Kiran Vasantham, Jana Jevcakova,
and Mandy Offel, Morrow Sodali, on Sunday, June 6, 2021
delighted to publish Morrow Sodali’s sixth annual Institutional Investor Survey
(IIS), which canvasses the views and opinions of more than a quarter of the
world’s assets under management  at
a globally significant point in time.
backdrop of the COVID-19 pandemic, Environmental, Social and Governance (ESG)
impacts at listed public companies have been propelled to the forefront of
investors’ minds as they assess the management of risks and opportunities,
operational resilience, and shareholder value creation through a period of
unprecedented market uncertainty and turbulence.
As is widely
reported, the trend of capital inflows into ESG-oriented investing has exploded
reaching a record high of USD 1.65 trillion in 4Q2020, up almost 29% from the
third quarter.  The
COVID-19 pandemic has contributed to the acceleration of ESG investing.
Importantly, the pace of investment in sustainable funds is expected to continue
to increase in the race towards a net zero carbon economy by 2050.
reason and following a global health crisis, the interest and appetite of
investors, especially asset owners, to hold boards and companies accountable for
their performance against “nonfinancial” ESG criteria is set to match, and in
some cases exceed, performance against traditional financial measures.
understanding and thoughtfully responding to the concerns that are weighing on
the minds of investors, it is necessary now more than ever to build investor
trust and support as companies and their leaders are faced with navigating
unique challenges. We hope that the findings of our IIS 2021 contribute to that
It should not
come as a surprise that over the past year, COVID-19 was identified by our
survey as one of the top reasons prompting investors to engage with companies.
With the mounting economic and operational pressures caused by the pandemic,
investors and other stakeholders are asking companies to articulate their
“Corporate Purpose”, mission and values as a core part of how they conduct
to senior executives has also come under specific scrutiny as a result of the
pandemic. Investors require cogent explanations where incentives have been paid,
especially if government “handouts” have been taken and where financial
performance has suffered. This scrutiny will continue into 2021 as company
revenues and profitability continue to be affected by the pandemic.
We note that a
number of identified survey trends over the past few years have continued,
including investor preference to engage directly with the board on environmental
and social issues. Undeniably however, investors rank climate risk as the most
important ESG issue and engagement topic for the second year running. Expanding
on data gathered from last year, investors are particularly interested in
understanding ESG in the context of a company’s business plan and the
identification of clear connections to financial risks and opportunities in a
company’s climate-related disclosures.
importance of climate risk has now clearly translated into investor willingness
to hold companies and boards accountable through the filing and co-filing of
ESG-related shareholder resolutions. This notable shift in attitude marks a
turning point in the relationship between companies and shareholders where the
failure of polite dialogue to drive change will directly impact investment and
many investors stated to be in favour of a “Say on Sustainability”. While a
number of companies worldwide have voluntarily adopted non-binding “Say on
Climate” voting resolutions, the survey suggests that in the near future “Say on
Sustainability” voting resolutions may also be on the table. However, in terms
of a “Say on Climate”, there are notable differences depending on the region; on
the one hand a number of European, Canadian and Australian corporations have
been open to the idea, but on the other, there has been significant push-back
from US companies and investors. It goes to say that similar differences could
be expected concerning any future “Say on Sustainability” campaigns.
other findings and insights can be found in our IIS 2021.
would like to sincerely thank all institutional investors who gave their time to
contribute to this survey.
For the IIS
2021, a total of 42 global institutional investors, managing approximately USD
29 trillion in Assets Under Management (“AUM”) voluntarily participated in the
survey. The data is therefore representative and can be extrapolated across the
total global investable universe.
gathered from direct conversations or via an online survey. Participating
investors represented a diverse spectrum of funds in terms of investment style,
profile, size and geographical location, among other attributes. The data and
findings will therefore be of interest to a wide range of listed companies
across all sectors, boards of directors and other capital market stakeholders.
year-over-year comparisons, a number of survey questions are repeated or follow
similar themes. In addition, new questions are asked that reflect topical
developments and themes.
to the Company-Investor Relationship
We carry out
this survey to find out what is really important to investors when analysing
this annually at our own expense because we are committed to enhancing the
relationship and understanding between companies and investors. It also informs
our work helping client companies with shareholder engagement and a broad suite
of corporate governance services. This also supports company-investor relations
that can be made more fluid, efficient, and effective; companies know what to
focus on and investors receive the information they need.
what underpins Morrow Sodali’s activities is facilitating dialogue and
understanding between companies and their institutional shareholders so they can
achieve the best outcome possible. This survey forms part of that endeavour.
A total of 19
survey questions were asked across four categories:
ESG & Sustainability
Remuneration and Voting
feedback and opinions were also invited and analysed as part of the survey
findings and observations as outlined in the table below:
Investors are giving ESG
more focus when engaging and investing, and a significant majority are taking
ESG into greater consideration when voting.
Key drivers for increased
ESG focus are the links to financial performance, followed by legislative
changes and client interest.
Investors cite the
discussion of ESG in the context of a company’s business plan as the key basis
for effective company engagement.
Climate risk remains the
number one engagement priority closely followed by human capital management,
remuneration and board composition. COVID-19 was also a top engagement
priority as were cybersecurity and supply chain management.
B. ESG and
Climate change is very
important to the investment decision-making process.
Every surveyed investor
reviews a company’s climate-related disclosures.
The top three improvements
investors are seeking from climate-related disclosures are clear links to
financial performance, the time horizon to impact on strategy and the
disclosure of metrics, targets and achievements.
Companies are expected to
disclose their “Corporate Purpose”, and engagement with the board was given as
the top action in the absence of disclosure.
TCFD was overwhelmingly
the most popular ESG reporting framework, followed by SASB and then in-house
proprietary frameworks focused on material topics.
Many investors support an
annual “Say on Sustainability”. However, there are also many who consider the
option to vote against the reelection of directors as sufficient to make their
voices heard on this topic.
Remuneration & Voting
ESG factors should be
considered when designing executive remuneration plans.
For both short and
long-term incentive plans, a weighting for ESG metrics and targets between 5%
and up to 25% was most supported.
To avoid misalignment
between pay and performance, companies should be wary of paying executive
bonuses when severely impacted by COVID-19.
Large incentive payouts
lacking performance hurdles and the payment of bonuses where COVID-19 impacts
were severe, were the top two indicators of pay and performance misalignment
that would result in negative votes on “Say on Pay”.
With COVID-19, the
appropriateness of dividend payments when faced with liquidity problems, big
lay-offs, taking government subsidies and dilution of share capital were
ranked as concerns relatively equally.
A majority of survey
respondents support the adoption of loyalty shares.
Investors prefer to
influence boards by engaging with directors, followed by direct engagement
with management. Although ranking lower, collaboration with other investors
and voting against directors are also viable influencers.
performance, poor strategy, weak governance and misallocation of capital were
the highest-ranking reasons for supporting an activist.
Lack of responsiveness to
investor support for ESG resolutions and material ESG controversies could also
result in support for an activist.
A clear majority are
prepared to file or co-file an ESG-related resolution.
publication, including footnotes, is available here.
Global AUM = USD 110 trillion:
Morningstar, Global assets in sustainable funds hit record high of USD1.65trn: https://www.internationalinvestment.net/news/4026468/global-assets-sustainable-funds-hit-record-
Harvard Law School Forum
on Corporate Governance
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