Investors demand more from company ESG reports

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Surveyed investors reported that the most useful source of nonfinancial information for making investment decisions was a company’s own annual report — deemed “essential” by 31% of survey respondents and “very useful” by 32%. The second-most-useful source was an integrated report — “essential” for 18% and “very useful” for 39%.

EY - Investors demand more from company ESG reports - Figure

While the annual report is held in highest regard for nonfinancial disclosures, most of the investors in our survey, 60%, believe that companies don’t disclose ESG risks that could affect their business and that they should disclose them more fully.

The quality of reported ESG information is getting better, with a range of research providers supplying more robust indicators and analysis, but there still is room for improvement. Large cap multinational companies are getting better at ESG reporting, but the quality of reporting drops off significantly with medium- and small-cap companies.

It is worth noting that corporate sustainability reports have yet to prove essential for investors. Despite broad support and widespread adoption pf sustainability or CSR reports by companies in concept, our findings suggest they aren’t delivering on their potential. Fewer than half of respondents (44%) view company sustainability reports as very useful or essential. An effective sustainability report - free from prevailing, short-term orientated financial reporting objectives – has the potential to widen the discussion to other sources of company capital (such as natural, social, human) with real impacts on perceived value.