A globally aligned, consistent set of metrics for measuring ESG performance would be of significant benefit to investors, according to PwC’s research. Only one third (33%) of investors surveyed think the quality of ESG reporting they are seeing is good, with under half (40%) trusting the information they get from ESG ratings and scores.
James Chalmers, Global Assurance Leader, PwC UK, said: “It’s important that companies respond to the call for more comprehensive and reliable reporting on ESG risks and opportunities to build trust with their investors and other stakeholders. The comparability that comes from having a globally aligned set of non-financial reporting standards also would increase trust in the numbers–and that would go a long way with investors.”
Nearly three-quarters (74%) of investors said their decision-making would be better informed if companies applied a single set of ESG reporting standards, and a similar number (73%) say it’s important to be able to compare ESG performance across companies. Consistent and comparable information is critical for investors in deciding where to put their capital.
Nadja Picard, Global Reporting Leader, PwC Germany, said: “The investors in our survey made it clear that they expect ESG to be an integral part of corporate strategy. They also understand that there is a cost to addressing ESG issues, and think companies should make those expenditures even if that means a hit to short-term profits. This makes it vital that companies tell their ESG story transparently and in a balanced way. Without a single set of globally aligned ESG standards, the financial community is severely challenged in evaluating ESG performance. It is much more difficult for companies to report on ESG performance without common benchmarks or frameworks to follow.”
The PwC 2021 Global Investor Survey captures the views of 325 investors from around the world, primarily active asset managers and analysts with investment firms, investment banks or brokerage firms. An additional 40 in-depth interviews were conducted globally with investors and analysts having more than a combined US$14 trillion assets under management.
Investors want more robust and trustworthy ESG reporting
Investors increasingly want to hear more from companies about their ESG-related commitments, with 83% stating it is important that ESG reporting provide detailed information about progress toward ESG goals. Greater engagement with investors is critical, along with transparent, trustworthy reporting.
Investors gain greater confidence in ESG reporting that has been assured. 79% of those surveyed said they place more trust in ESG information that has been assured, and 74% think it’s important that reported ESG-related metrics are independently assured, with 73% wanting this to be done at the same level as the financial statement audit.
Climate is the leading ESG consideration for investors
Reducing Scope 1 and 2 greenhouse gas (GHG) emissions was the most cited (by 65%) ESG issue for companies to prioritise. What’s more, 82% of investors said it is important that ESG reporting explains the rationale for a company’s environmental commitments, along with detailed plans on how to reach them. Ensuring worker health and safety (44%) and improving workforce and executive diversity, equity and inclusion (37%) are other priority ESG considerations identified.
According to the investors surveyed, trust and ESG strategy starts at the top. A high percentage of investors (82%) said ESG needs to be embedded in the corporate strategy, and by a wide margin (66%) respondents said they are more confident ESG issues are being addressed if someone in the C-suite is accountable. More than half of those respondents (53%) think it should be the CEO.
Hilary Eastman, Head of Global Investor Engagement, PwC UK, commented: “Demonstrating ESG commitment and performance requires a holistic approach to reporting, with sustainability, risk and financial reporting teams working together. Tone from the top helps to cascade the importance of ESG throughout the business and, ultimately, our research shows that to meet the demands of investors, companies need to take their ESG-related performance as seriously as they do all of their business and financial metrics.”
Companies failing to act on ESG issues risk losing investors
Almost half of investors surveyed (49%) express willingness to divest from companies that aren’t taking sufficient action on ESG issues. More than half, 59%, also say lack of action on ESG issues makes it likely they would vote against an executive pay agreement, while a third say they have frequently taken this action. A large majority, 79%, say the way a company manages ESG risks and opportunities is an important factor in their investment decision making, with over three-quarters (76%) considering a company’s exposure to such risks and opportunities as a way to identify and weed out potential investments.
Nadja Picard, Global Reporting Leader, PwC Germany, concluded: “It is clear that investors expect ESG to be an integral part of corporate strategy. If investors don’t see that commitment, they won’t hesitate to act and that can include divesting their position in a company and taking their clients’ money elsewhere. Given the current operating context, companies today need to leverage the best of existing standards, focusing at least initially on the topic of climate, to respond to urgent investor demand.”