- 98% of institutional investor respondents evaluate nonfinancial performance based on corporate disclosures
- 91% say that nonfinancial performance has played a pivotal role in their investment decision-making over the past 12 months
- 75% would find value in assurance of the robustness of an organization’s planning for climate risks
Institutional investors are ramping up their efforts when it comes to assessing the performance of companies using environmental, social and governance (ESG) factors, according to the fifth EY Climate Change and Sustainability Services (CCaSS) survey of 298 institutional investors globally.
The vast majority of investors (98%) evaluate nonfinancial performance based on corporate disclosures, with 72% saying they conduct a structured, methodical evaluation, according to the survey. This is a leap forward from the 32% who said they used a structured approach in the survey’s fourth edition in 2018.
At the same time, investors are increasingly holding companies accountable, with ESG factors playing a central role in their decisions. Investors say that nonfinancial performance has played a pivotal role in their investment decision-making over the past 12 months (91%), either frequently or occasionally, with the proportion of investors that say this happens frequently jumping to 43% from 34% in 2018.
Climate change in particular plays a significant part in investors’ decision-making process, with 73% responding that they will devote considerable time and attention to evaluating the physical risk implications of climate change when they make asset allocation and selection decisions.
The growing ESG disconnect
The survey also identifies a growing disconnect between the increased focus on evaluating ESG performance from investors and the availability and robustness of standardized and rigorous nonfinancial data from corporates.
The number of investors that are dissatisfied with environmental risk disclosures has jumped to 34% from 20% in 2018. At the same time, the percentage of respondents who say that companies do not adequately disclose the social and governance risks that could affect their business models increased to 41% (from 21% in 2018) and 42% (from 16%) accordingly.
Asked about challenges to the usefulness and effectiveness of current ESG reporting, 46% of investors identified the disconnect between ESG reporting and mainstream financial information as the top challenge. The lack of real-time information (41%), or information about how the company creates long-term value (41%), as well as the lack of forward-looking disclosures (37%) and the lack of focus on the material issues that really matter (37%) completed the list.
Investors call for independent lens on ESG performance
The EY research found significant appetite among investors for an independent lens on ESG performance with three-quarters (75%) saying they would find value in assurance of the robustness of an organization’s planning for climate risks. Investors also see a strong need to build confidence and trust in green investment disclosures, with 82% saying it would be useful to have independent assurance of the impact of green investments.
Christoforos Socratous, Partner and Energy Sector Leader of EY Cyprus, says: “The rules for global capital markets are being rewritten, as investors focus on long-term value creation and increasingly assess company performance based on environmental, social and governance factors. However, organizations cannot always provide the standardized and rigorous nonfinancial data required to secure investors’ confidence. This disconnect between investors and corporates may prove critical in view of the capital required to support economic recovery. Effective governance practices and assurance of nonfinancial processes will help build trust and transparency”.
For further leading edge thinking and insights around climate change, sustainability and nonfinancial reporting, please visit the new EY Sustainable Impact Hub.
EY Climate Change and Sustainability Services survey (in Greek)
For more information, please contact the EY Cyprus
Email: Irene Charitou
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