Investors see ESG as short-term business risk

Cost, disruption, and communication gaps drive investor concerns.

Despite growing interest in sustainability, 92% of investors still view environmental, social, and governance (ESG) initiatives as a short-term risk to business performance, according to EY 2024 Institutional Investor Survey. Experts point to cost concerns, market volatility, and information gaps as key factors behind this perception.

“On the ESG initiative, for example, on the financial front, there may be certain doubts about the cost as well as the value,” said Prof. Lawrence Loh, Director of the Centre for Governance and Sustainability at the National University of Singapore (NUS) Business School. “You might actually lose out on your market share… and last, and I think very, very importantly, is the regulatory uncertainty.”

Tianhao Yao, Assistant Professor of Finance at Singapore Management University, said that ESG risks are baked into financial markets earlier than most expect. “The price today will reflect events that potentially happen in, let's say, five to 10 years,” he said. “If there is any update on the belief of these ESG matters, it will drive the asset price fluctuation and affect investor wealth even in the short term.”

Benjamin Soh, Founder and Managing Director of ESGpedia, added that ESG transitions typically require upfront spending. “This is usually due to a lack of awareness about the benefits that this change might bring to us,” he said. “That leads to investor risk apprehension.”

Industries facing the greatest short-term ESG challenges include oil and gas, transportation, construction, and manufacturing, experts say.

“These are some of the industries… that would face the challenge of ESG,” said Loh. “And of course… travel, manufacturing, chemicals and, of course, don’t forget finance.”

Yao warned that consumer-facing sectors are also at risk. “Consumers… start to care a lot about sustainability when they consume,” he said. “When the consumer-oriented company experiences some negative ESG scandals… they will have lower sales, lower earnings, drop stock value.”

Soh noted that traditional infrastructure-heavy sectors face cost and logistics hurdles in making the ESG shift. “Logistics vehicles… require the charging infrastructure,” he said. “It’s also providing them the right infrastructure to… charge this equipment easily and efficiently.”

Improving transparency is critical to easing investor fears. “Disclosures and reporting is very critical… that companies use things that are acceptable globally,” Loh emphasized. “Very importantly… companies must be relentless in their communications effort.”

Yao echoed the importance of better data. “Companies need to disclose more transparent, more precise and more mature information,” he said. He added that improving how disclosures are translated into ESG ratings is essential, as many investors rely on simplified summaries.

Soh believes digital tools can close this gap. “Technology helps quantify the proceeds or the benefits,” he said. “That actually makes a lot of business sense… we could see that there’s a greater ROI if we are able to show this value.”