Corporate ESG Reporting: Are You Disclosing What Investors Want to Know?

From Environmental Leader, Published on 27 October 2016

Sustainability reporting has become mainstream and a must-do for corporations, with 81% of S&P 500 companies publishing sustainability reports in 2015 compared to 20% in 2011.

Investors are also increasingly interested in a company’s nonfinancial disclosures, as evidenced by CDP’s Climate A List published in October 2016 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%) surveyed by PwC said that companies are not disclosing ESG information in a way that allows easy comparisons.

Meanwhile, 60% 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% of corporates said ESG considerations are “very important” to the company’s core strategy, compared to 31% 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% of corporates said their companies only have limited data to share while 29% 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% 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% of corporates currently report using GRI’s standards, while 43% 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% of investors said this would increase their confidence, compared to 43% of corporates. Thirty-six% 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.

In an earlier interview, GRI interim chief executive Eric Hespenheide said ESG reporting gives companies a business advantage.

“GRI reporting can also help organizations improve their financial performances, by giving businesses and their stakeholders a broader perspective on the risks facing the business,” he said. “The use of GRI Standards can help organizations identify topics before they become financially material. Early identification of these issues can make organizations more resilient and financially viable over the long-term.”

 

For additional reading regarding ESG, please refer to the following links:

ESG: A Growing Interest for Business Investors

Why ESG Integration is Good for Your Business

Sustainability Metrics: ESG Actions Make for Profitable Business