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According to 325 investors worldwide, the majority of which were self-identified active asset managers making investments for the long term, ESG – after being a topic of conversation for years – is gaining even more traction.
Our survey highlighted a number of deficiencies in current ESG reporting. Simply put, much of today’s ESG reporting lacks relevant, timely, complete and comparable information – such that stakeholders cannot easily differentiate between companies on ESG-related performance – making capital allocation decisions difficult for all in the ecosystem. The clear message: the time for a single set of globally aligned non-financial reporting standards is here.
Investors said they want to engage with companies on their ESG journey, but in the absence of real action and transparent communication through reporting, they will take action too – using their power to vote and, if necessary, selling their investment and walking away.
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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.
Key themes from the survey
Growing focus on ESG
ESG is becoming more integrated into investment decision making, with a significant majority of respondents wanting companies to embed ESG into corporate strategy.
Sources and usefulness of ESG information
ESG information is most commonly sourced from annual reports and sustainability reports. But the quality of information is lacking and investors even struggle to get good information on things as fundamental as the relevance of ESG factors to the company’s business model.
Most frequently used sources of ESG information
- Annual report, sustainability report
- Investor presentations, earnings calls
- Third party data providers
- Press releases
- Analyst research reports
We’re at a tipping point where ESG has gone mainstream. You can’t walk into a financial institution now to talk about long-term themes without mentioning ESG.
ESG’s influence on investment analysis and decision making
While ESG risk factors of the companies have been considered by investors for many years, the recent spotlight on ESG has elevated the impact of ESG in investor decision making. However, it is unclear whether capital markets are allocating resources to companies that need it for progressing towards greater sustainability.
Confidence in ESG information
Investors generally place more trust in ESG information that has been assured and they want it to be assured at the same level as financial statement audits. They think such assurance should be provided by a regulated and independent expert, skilled in both the subject matter and audit methodologies and processes.
ESG in pay and incentives
Investors want to know that a company takes managing ESG issues in the business seriously. One way to tell that is by understanding who is responsible for it and how they are incentivised. They see executive pay as a lever to encourage change.
The investors in our survey sent a clear message: if companies take the right actions on ESG, investors will support it, but they want to be brought along for the ride, however bumpy it might be. That means being upfront about the prospects for long-term value creation and the ways in which the company manages risks, including unexpected ones. When telling investors and other stakeholders about plans to reset strategy, reimagine reporting, reinvent operations, and drive toward new outcomes, companies build trust while creating sustainable value for the long term.
Show the plan of how to get from here to there, even if the plan is imperfect. And most importantly, show progress against the plan.
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.
About the survey
PwC’s 2021 Global investor survey on ESG was based on an online survey of 325 investment professionals across 43 territories and 40 in-depth interviews with investors and analysts in 11 territories representing combined assets under management (AUM) of more than US$14 trillion.
Please note: Due to rounding, percentages in the charts may not add up exactly to 100%.
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The economic realities of ESG
Investors prize clarity about the initiatives companies are undertaking, the reporting they are doing—and the returns they will generate. Here’s how leaders can answer the bell.
Read more about the economic realities of ESG
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Global Sustainability Reporting Leader, Partner, PwC Germany
Tel: +49 (0)211 9812978
Olwyn Alexander
Global Asset & Wealth Management Leader, Partner, PwC Ireland (Republic of)
Tel: +353 (0) 1 792 8719
Global Asset and Wealth Management ESG Leader, Partner, PwC United States
Tel: +1 617 901 6373