The vast majority of senior investors and business executives are planning to increase ESG investment over the next 5 years, with each group anticipating a range of benefits from a greater ESG focus, including 90% of investors expecting enhanced returns, and executives seeing improved access to capital and corporate reputation, according to a new survey released by Bloomberg Intelligence (BI).

For the report, BI’s inaugural ESG Market Navigator, Bloomberg surveyed 250 C-suite executives across a wide range of sectors, and 250 senior investors including asset managers, wealth managers and investment banks, across North America, Europe and Asia Pacific.

One of the report’s key findings was that the trend of increasing focus on ESG by both businesses and investors over the past few years appears to remain intact, despite various backlash headlines, with around three quarters of executives reporting that the benefits of ESG are worth the increased risk of greenwashing scrutiny, and more than half of investors saying that the political pushback on ESG in the U.S. has actually led them to focus on ESG more than ever before, and another 31% reporting that it has not affected their ESG strategy. A large majority of both groups, including 90% of investors and 67% of executives acknowledged that ESG has entered the mainstream.

The groups differed significantly in their rankings of long-term ESG benefits, with 63% of investors scoring   profit and returns as one of the 3 top benefits, the most cited of any factor, compared with only 32% of executives, who selected brand value most often, at 66%.

Among investors, 86% reported that they view ESG as part of their fiduciary duty, 90% said that ESG investments were expected to deliver better returns, while 92% said that ESG supports a more resilient portfolio strategy, and 89% reported that ESG analysis supports better informed decisions. Accordingly, most investors plan to grow their investments in the area, with 86% and 88% planning to expand AUM towards ESG and climate, respectively, over the next 2 years, and 25% reporting that they anticipate a greater than 30% allocation to ESG in 5 years, compared to 6% who expect this allocation in 1 year.

Similarly, 85% of investors report plans to boost their ESG research budgets over the next 2 years, including nearly one in four who plan to do so by more than 20%.

Investors also report becoming more active on engaging companies on ESG issues, with over 60% reporting that they challenge corporates on ESG strategy, and 84% saying that they see an increased focus on ESG on investor calls.

Executives similarly reported plans for near-term growth in ESG investment, with 77% anticipating an increased ESG budget in the next 2 years, including 23% expecting an increase of more than 20%. The surveyed executives cited a wide range of benefits to ESG, with 84% reporting that it helps shape a more robust corporate strategy, 81% saying they worry about losing market share if they fall behind on ESG, and 76% saying that an ESG strategy improves access to capital.

Additionally, 84% of executives reported incorporating ESG and climate factors in their corporate planning and M&A strategies, and while 57% said that they expect to hit their net zero targets, only 33% expect their peers to do so.

One of the top key trends cited by both groups for the next year is the impact of AI on ESG, particularly as a source of addressing data problems that have been a barrier to investor and corporate ESG initiatives. More than 90% of executives and investors agreed that “AI is a friend of ESG,” with top cited benefits including better data estimation, improved supply chain traceability, and the ability to track controversies.

Adeline Diab, Global ESG Research and Strategy Director at Bloomberg Intelligence, said:

“ESG has moved from a fringe concern, to mainstream and finally, to a mandated necessity. We expect 2024 to be about ESG accountability and an era where investor-corporate dialogue will be vital, 60% of investors hold companies answerable on ESG, while 40% of executives face ESG questions on over half their investor calls. I firmly believe that scrutiny will help shape a more credible ESG market overtime.”