Investors are increasingly relying on nonfinancial performance information, including disclosures by companies about their environmental, social and governance practices, to make their investing decisions, according to a new survey by Ernst & Young.
EY’s Climate Change and Sustainability Services practice polled more than 320 institutional investors, including portfolio managers, equity analysts, chief investment officers and managing directors, for the survey. Sixty-eight percent of the respondents said nonfinancial information frequently or occasionally plays a pivotal role in their investment decision-making. In addition, 92 percent of the poll respondents said public company CEOs should provide an explicit strategy each year for long-term value creation and directly affirm the board has reviewed it.
Investors were asked how frequently a company’s nonfinancial performance has played a pivotal role in their investment decision-making in the past 12 months, and 27 percent said frequently, 41 percent said occasionally, 27 percent said seldom, and 5 percent said never. Those 2016 figures were up from 2015 on the annual survey, when 24 percent said frequently, 28 percent said occasionally, 22 percent said seldom, and 26 percent said never.
In terms of environmental, social and governance risks, 81 percent of the respondents indicated they don’t believe companies adequately disclose ESG risks that could affect their current business models, while 76 percent said they would reconsider an investment because of a risk or history of poor environmental performance.
Pressure on companies to report verifiable ESG information is on the rise from investors, according to the survey. It found 58 percent of the investors polled expect at least a moderate increase in disclosures of businesses’ climate practices and risk management strategies, while another 27 percent anticipate dramatic improvements in this area.
“Given there is now evidence that sustainable companies outperform their peers, investors are seeking information that provides the confidence that management and the boards of their investees are thinking long term,” said EY global and Asia-Pacific climate change and sustainability services leader Mathew Nelson in a statement. “They want board-reviewed strategies laid out each year and they want third-party oversight. We know that in the absence of clear, consistent and verifiable data, investors are taking matters into their own hands—some are starting to underweight these companies in their portfolios.”
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