Investors are also increasingly interested in a company’s nonfinancial disclosures, as evidenced by CDP’s Climate A List published this week at the request of 827 investors with assets of $100 trillion.
But are companies disclosing what investors actually want to know about their environmental, social and governance (ESG) efforts?
A new report from PricewaterhouseCoopers says no. More than nine out of 10 investors (92 percent) surveyed by PwC said that companies are not disclosing ESG information in a way that allows easy comparisons.
Meanwhile, 60 percent of corporates say the data disclosed is helpful, suggesting a disconnect between what companies and investors consider material issues. PwC says instituting a commonly recognized and widely understood standard is a potential solution.
The report, Investors, corporations and ESG: bridging the gap, is based on responses from both institutional investors and companies.
“With this increased reporting comes added expectations from investors on what these findings mean for them when taking stake in a company,” said Sara DeSmith, US sustainable business solutions assurance leader at PwC. “The stakes are high for both parties, and it’s necessary to bridge that gap to figure out the best way to work together on this initiative moving forward.”
Other findings include:
- Investors and corporates agree that ESG considerations are important, but the level of importance differs. Sixty-five percent of corporates said ESG considerations are “very important” to the company’s core strategy, compared to 31 percent of investors who say considerations are “very important” in their equity investment decision making.
- Several perception gaps are getting in the way of disclosure. Limited data and the perception that investors don’t use the information provided were the two big areas getting in the way of disclosure, according to respondents. Twenty-nine percent of corporates said their companies only have limited data to share while 29 percent of investors say that companies think investors won’t act on the information given to them, so disclosure isn’t important. Additionally, there was a big difference in opinion on the quality of what is being reported. All of the corporations surveyed said they were confident in the data they were releasing, but less than 30 percent of investors felt that way.
- Standardizing and certifying ESG disclosures could help boost confidence in reporting. There is no common framework or set of standards for ESG disclosures: 80 percent of corporates currently report using GRI’s standards, while 43 percent of investors would prefer them to follow SASB’s standards, further contributing to the disconnect.
- Investors also expressed an interest in improving the quality of ESG information. Having the information certified or audited by an independent third party is one way. Thirty-six percent of investors said this would increase their confidence, compared to 43 percent of corporates. Thirty-six percent of investors also noted that having information incorporated into US Securities and Exchange Commission filings to signal higher quality would help the case. The SEC is currently considering mandating corporate disclosures of ESG issues.
The PwC report follows the Global Reporting Initiative’s launch of the GRI Standards, the latest evolution of GRI’s reporting disclosures.