Non-financial disclosures are becoming increasingly essential to institutional investors' decision-making, according to a study by EY. They are much more likely to take note of environmental, social and governance (ESG) factors within issuing companies and believe that these factors will be even more important during a difficult market. They also called for standardised ESG data to create benchmarks and are placing increasing emphasis on long-term value.

The 2018 report on Climate Change and Sustainability Services (CCaSS), which polled 220 institutional investors globally, found that 97 per cent of institutional investors evaluate a target companies’ non-financial disclosures and that this affects their investment decisions. The majority (59 per cent) said that better accounting standards for non-financial information would be highly useful to establish benchmarks, while seven out of 10 said that national regulators are best suited to close the gap between investors’ need for non-financial information and issuers’ information.

Focus on long-term value

The survey also found that 89 per cent of investors think that environmental, social and governance (ESG) will become more valuable in the event of a market downturn or correction. EY's Mathew Nelson commented: “Investors are requesting more and higher-quality non-financial data from public companies, and seeking consistent, investment-grade information to support their decision-making. With the greater focus on long-term value creation, companies need to get ahead to meet these disclosure demands so that their organisations are best positioned for receiving investment.”

Some of the report's other findings are:

• 59 per cent of investors said that better accounting standards for non-financial information would be very beneficial, a dramatic increase of 26 percentage points from the survey in 2017;
• poor governance practices (the risk or history of) would cause 62 per cent to rule out an investment immediately, compared to 27 per cent in 2015; and
• the top-four factors that most motivated institutional investors to report on ESG or non-financial activities were regulatory compliance (90 per cent), risk management (87 per cent), explaining strategy to general long-term value (78 per cent) and competitive pressures (70 per cent).