Roughly half of institutional investors think that most companies do not acknowledge the risks to their business from the current political climate, according to the 2017 Edelman Trust Barometer Special Report: Institutional Investors, a survey of global institutional investors that highlights emerging risks and opportunities for companies to build and maintain trust with the financial community. 

The inaugural report surveyed more than 100 investors in 14 countries, respondents representing firms that manage more than $1 trillion in assets, reveals that found that investors are comfortable with companies becoming more engaged in political and social issues.

More than three-quarters (76%) of investors believe that companies have an urgent obligation to take a public stand on one or more social issues to ensure the global business environment remains healthy and robust.  Among the issues most frequently selected by investors were education reform/training, environmental issues, and free trade. 

“For the first time, we can show that investors put trust at the front of the line when choosing stocks,” said Richard Edelman, CEO of Edelman. “This new research shows that investors and the public alike are looking to business to fill the void left by the implosion of trust in government by taking a stand on the issues of our day.”  

In addition, 87% of respondents say that customer service satisfaction affects trust, and one-third say that a poor relationship between a company’s leadership and employees hurts their trust in a company. More than two-thirds (69%) say that prioritizing employee commitment builds trust in a company. 

Nearly half of investors believe that their firm’s actions can play a meaningful role in influencing a company’s corporate governance.  Additionally, 87% of institutional investors say that they would support a reputable activist investor if they believe change is necessary at a portfolio company. 80%, meanwhile, agree that most companies are not prepared to handle shareholder activist campaigns.

The Special Report reveals that trust drives the valuation of public companies. According to survey results, “trust in the company” is the top driver of investment decisions (82%), followed by ethical standards (76%), current valuation versus peers (75%), product R&D/Innovation (74%), and historical financial performance (70%).  Additionally, 94% of respondents say that trustworthy companies deserve larger premiums than those considered untrustworthy.

Effective communications are essential for building trust. 93% of investors say that keeping investors consistently well informed is necessary to earn their trust, and nearly all say that they trust companies that have a clear strategy more than those that do not. In addition, 79% of respondents would like to see more qualitative, forward looking disclosures when evaluating an investment, and 68% say that providing long-term guidance or financial performance helps build their trust in a company.

“This first-of-its-kind research offers new insights into how companies can prioritize certain actions and institute new behaviors to build trust with investors, thereby enhancing valuation,” said Lex Suvanto, global managing director of Edelman financial communications. “Companies must promote themselves inside-out to win trust while upgrading the fundamentals of their communications to the street. At the same time, investors view themselves as agents of change and will take action if companies fail to do so on their own.”