Survey: Two-thirds of investors don’t think businesses are disclosing high-quality ESG information
A survey of 325 investors with more than $14trn in assets under management collectively has revealed that more than half (60%) do not trust the information they get through ESG rating frameworks.
Conducted by PwC, the survey questioned investors from around the world, garnering what they make of disclosures on environmental, social and governance (ESG) issues from corporates – both directly and through rating schemes and agencies.
Just one-third (33%) of the investors think the quality of ESG reporting they are seeing is good. A similar proportion (29%) said that current reporting adequately considers how ESG performance will impact a business’s bottom line.
Partly because of these perceived shortfalls in quality, most investors (60%) say they do not trust the information they receive through ESG ratings and scoring systems. These systems were generally trusted more than individual, non-verified corporate disclosures, however.
Many thought-leaders in the investing space have criticised these systems, amid the booming increase in ESG investing and linked finance post-Covid-19. A team of Bloomberg’s analysts this month accused the systems of creating a “mirage”, for example, promoting corporate business-as-usual rather than seeing how aligned or misaligned corporates are with global goals on issues such as the climate crisis. EY’s global vice-chair for sustainability Steve Varley has called the current landscape an “alphabet soup”, whereby corporates see reporting as a compliance-based activity rather than an opportunity for real change.
PwC’s research also found that many investors do not like the fact that there are, currently, many ESG rating schemes and agencies using different metrics and frameworks. This can make comparing information, or understanding what scores mean, challenging, the survey found.
Three-quarters (74%) of the investors polled said their decision-making would be better informed if companies applied a single set of ESG reporting standards.
“Without a single set of globally aligned ESG standards, the financial community is severely challenged in evaluating ESG performance,” said PwC Germany’s global reporting leader Nadja Picard. “It is much more difficult for companies to report on ESG performance without common benchmarks or frameworks to follow.”
Carbon ‘tunnel vision’?
The survey also looked at which ESG issues are a priority for investors.
When investors were asked which issue it is most important for companies to prioritise, the most common answer was reducing greenhouse gas emissions from operations in line with climate science. Two-thirds of the investors cited this issue.
A significantly lower proportion, 44%, cited the second-most-cited issue – ensuring worker health and safety. This points to potential carbon tunnel vision, amid the snowballing global net-zero movement.
Nonetheless, there was a general recognition from the investors that ESG issues are interlinked and that a joined-up approach is needed from corporates. 82% of the investors said ESG needs to be embedded in corporate strategy and two-thirds said they would be more trusting of a business’s reported progress if one or more C-suite level executives was leading on this agenda from the top.
A separate piece of research published by PwC last month found that 58% of FTSE 100 companies now link ESG measures to executive pay, which is more than a 30% increase year on year. This is one increasingly popular way of building accountability.
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