EY member ﬁrms are able to conclude from several years of research of ESG reporting that there is a global trend toward increased interest in nonﬁnancial information on the part of investment professionals. But the question we continue to seek to answer is whether ESG information is, ultimately, inﬂuencing investor decisions. In each of the last three years, research undertaken by EY has documented an expanding role of ESG factors in the decision making of investors around the world.
· Investors around the world reveal broad support for the ESG-related themes expressed in the February 2016 memo from Laurence Fink, Chairman and CEO of BlackRock, to the leadership of the world’s largest companies. Investors strongly support Fink’s call for an annual board approved strategy statement for public companies. They agree that ESG factors present risks and opportunities that have been neglected for too long. Yes, say investors, sustainable returns require a sharper focus on corporate governance and on environmental and social factors.
· The risk of stranded assets remains a substantive concern for institutional investors, continuing a trend documented in last year’s report. More than 60% of the investors in our 2016 survey reported recently decreasing their holdings or monitoring holdings closely due to stranded asset risk.
· Despite the increasing importance placed on nonﬁnancial performance and disclosures, most of the surveyed investors evaluate environmental and social factors on an informal, not structured, basis
· Disclosure and scrutiny of nonﬁnancial information will continue to grow in importance in the years ahead. The Paris Climate Conference agreement will lead to an increase in disclosures about companies’ climate practices and risk management strategies, say investors. They report that recent environmental and social scandals have driven them to reevaluate nonﬁnancial disclosures and look more closely at available information.
· Nonﬁnancial performance plays a pivotal role in the investment decisions for most of the surveyed investors, and for a greater percentage of investors than in previous years. Also, a dwindling percentage of investors believe that it is unclear whether nonﬁnancial disclosures are material, down substantially from surveys in 2015 and 2013.
· Investors believe the biggest factors motivating companies to report ESG information are the reputation of companies with their customers and regulatory compliance mandates. Most investors believe that companies don’t disclose ESG risks that could affect their business.
Read the full report here