EY’s 2015 Global Institutional Investors survey shows that investors are increasingly interested in using nonfinancial data to make investment decisions. It also shows that there is a lack of nonfinancial data in company reporting. This nonfinancial data could include things like having strong environmental policies, charitable donations, community investment, and a strong corporate responsibility or sustainability program.
More than half of the surveyed investors say that they need a broader view of a company’s value creation in order to make risk-adjusted investment decisions. Investors are interested in a company’s environmental, social, and governance (ESG) data and business risks related to it. But despite this interest, companies are not meeting reporting expectations.
More than one third of respondents have decreased holdings of a company’s shares in the last year due to stranded assets. More often than not, assets become stranded, losing value or liquidity, because businesses have failed to take timely action to change policies and infrastructure to reduce their environmental impacts and risks in an orderly fashion. Another quarter of those surveyed said they will be closely monitoring stranded assets risk in the future. This shows a definite increase in interest in ESG performance.
Investors showed interest in understanding an organization’s business strategies, business models, and performance through the use of integrated reporting. This reporting takes into account the financial performance and sustainable development of a company, allowing for more long term planning as part of risk management. There are several factors that investors agree integrated reporting should take into consideration. This reporting should
- use industry-specific criteria;
- be focused on measurable performance factors, such as regulation, cost, and risk;
- explain the links between nonfinancial risk and performance; and
- come from the company, with top-level company approval.
There is still a significant gap between the nonfinancial ESG reporting that investors want and the information companies provide. This creates an opportunity for businesses to be at the forefront of this type of reporting as a means of ensuring better access to the capital markets. As investors increase the use non-financial information as determining factors early in their investment process, the pressure for ESG information will mount.
Read the full report here.