The majority – 82 per cent – of institutional investors say that environmental, social and governance (ESG) risks have been ignored for too long by the business world. Four out of five of the 320 investors interviewed in EY's global survey also said that companies do not adequately disclose non-financial risks that could affect their business. The survey – Is your non-financial performance revealing the true value of your business to investors? – looked at attitudes to climate change and sustainability services in non-financial reporting.
More companies reporting non-financial performance
Recent events, including environmental and social corporate scandals, mean that investors are now paying more attention to how companies are disclosing their non-financial performance and risks. More than nine out of 10 says that ESG issues have a tangible and quantifiable impact over the long term. Eighty-nine per cent said that a sharp focus on ESG issues can generate sustainable returns over time. The following graph shows an overall increase in how often a company's non-financial performance plays an important role in an investor's decision-making:
Focus on long-term values
EY's Mathew Nelson says: “Recent corporate environmental and social scandals and a focus on longer-term value versus short-term dividend payouts are clearly pushing non-financial reporting up institutional investors’ agendas. This leads to a disconnect between investors who see ESG as having real and quantifiable financial impacts and companies that do not see ESG risks as core to their business.”
The survey found that more investors think that a company’s non-financial performance plays a pivotal role in their investment decisions and investors are also seeing an increase in clients requesting ESG information.
Some of the findings include:
- In the last 12 months, 68 per cent of respondents said a company’s non-financial performance had played a pivotal role in their investment decisions, up from 58 per cent in 2015;
- 60 per cent of institutional investors say that their clients are now demanding ESG information;
- 73 per cent said they conduct only informal assessments or no review at all;
- 59 per cent said that in the absence of a direct link between ESG initiatives and business strategy to create value in the short, medium and long term they would reconsider investment;
- 58 per cent of investors would reconsider investment following disclosure of risk or history of poor governance.
Why companies report on ESG
The following graph shows what investors think are the main motivators that drive companies to report on non-financial and ESG activities:
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