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Edelman Trust Barometer 2018: Institutional Investors Supplement

  • Investor Relations

The Edelman Trust Barometer remains the gold standard when it comes to measuring the eponymous virtual commodity that companies seek to build with their stakeholders. 2018’s version was released in January at the World Economic Forum, and contains takeaways for the entire business community to be aware of. (Click here for our wrap-up of last year’s supplement, which included input from Ipreo.)

In December 2018, Edelman launched its second annual supplement to the survey, Special Report: Institutional Investors, that dove deeper into how the investment community measures companies, management teams, and IR teams on their effectiveness in building trust.  This version covers over 500 buy-side participants managing over $4.5 trillion in assets globally.

As usual, the headline values show the impact of trust on the investment decision.  67% of respondents rank “My trust in the company” as a very important factor in an investment decision – even more than inputs such as “current valuation vs. peers” (63%), “historical financial performance” (61%), or even “product R&D / innovation” (57%).

The results are an excellent read for the IR community as usual – a couple takeaways that stood out to us:

Guidance practices are central to maintaining trust. Respondents in the institutional community clearly fall on the long-term side of the short-termism argument. 66% of investors state that long-term guidance on financial performance has a great deal of impact on trust; also, 62% state that a company’s investment in innovation (typically with a longer-term return horizon) has similar high levels of impact on how they trust management.

Engagement on governance practices has a strong impact on trust – and may require the board’s involvement. 94% of global investors state that they need to trust the board of directors in order to make an investment, and 65% of US investors / 60% of global investors state that actively engaging the investment community on corporate governance matters has a great deal of impact on trust.  57% of respondents believe that an accessible board is very important – while companies are naturally wary of board member communication directly with investors, seen another way, board members that are able to communicate effectively with major investors might be seen as a strong differentiator against other investment options in achieving the trust necessary to build or maintain an investment.

Investors are changing their policies regarding ESG risks, not just over time, but right now. 89% of global investors, including 90% of US investors, state that their firms have changed their voting and/or engagement policies to be more attentive to ESG risks.  Further, 63% of global investors and 66% of US investors note that their firms have made changes to their policies in the last year.  94% of US participants stated that long-term value hinges on both financial performance and ESG features of a company, with US investors moving up by three positions in the rankings relative to other countries’ investors versus last year’s survey.

Contact info and the survey details are available here.  That said, plenty to think about for companies seeking to stay ahead of the curve – there are a lot of other items beyond the investor presentation deck that go into an investment decision, and getting those items right is becoming table stakes, not just an option.

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