How nonfinancial reporting is driving investment decision-making

Climate agreements and other news have propelled environmental, social and governance (ESG) analysis to the top of the global agenda.

Almost daily, headlines reflect why meaningful environmental, social and governance (ESG) analysis is increasingly important for institutional investors and the companies they follow. The Paris global climate agreement signed by 176 nations will shift financial markets dramatically. And one of the world’s largest automakers was embroiled in an unprecedented emissions-testing scandal. 

These events and other news have propelled ESG to the top of the global agenda. This comes despite continued uncertainty in the regulatory environment globally. 

While there is a global trend toward increased interest in nonfinancial information on the part of investment professionals, the question we continue to pursue is whether or not ESG information is, ultimately, influencing investor decisions.

Our report on ESG and nonfinancial reporting provides insights into the views of more than 320 institutional investors on nonfinancial reporting by publicly traded companies and the role ESG analysis plays in their investment decision-making. Key findings include:

• Sustainable returns require a sharper focus on corporate governance and on environmental and social factors.
• Most of the surveyed investors evaluate environmental and social factors on an informal, not structured, basis.
• Disclosure and scrutiny of nonfinancial information will continue to grow in importance in the years ahead.
• Nonfinancial performance plays a pivotal role in the investment decisions for most of the surveyed investors, and for a greater percentage of investors than in previous years.
• Investors believe the biggest factors motivating companies to report ESG information are regulatory compliance mandates and the reputation of companies with their customers.
• The risk of stranded assets remains a substantive concern for institutional investors.