Originally published at ey.com. EY is a Hall of Fame company.
Businesses and many of their biggest investors across the globe are at odds over the action needed on sustainability — a clash of opinion that threatens to stifle access to capital for many organizations and could hinder progress on decarbonization, according to the latest EY Global Corporate Reporting Survey.
The survey canvasses the views of 1,040 chief financial officers (CFOs) and other senior finance leaders, and 320 institutional investors around the world and looks at their expectations and goals in relation to sustainability investment and reporting.
Long-Term Investments or Short-Term Gains
According to the report, more than three quarters of investors (78%) say they believe companies should invest in improvements relating to environment, social and governance (ESG) matters, even if it dents their short-term profits, but only 55% of business leaders hold the same view.
And the findings show that more than half of companies (53%) believe their efforts to drive long-term investments are, in fact, impeded by investor pressure to show short-term gains. One in five (20%) of the finance leaders surveyed went as far as to say that investors are “indifferent” to long-term investments, including those relating to sustainability.
Investors are also highly critical of businesses’ approach to disclosing important information on sustainability activity. Almost all investors surveyed (99%) say that ESG reporting is a crucial part of their investment decision making, but three quarters (76%) feel that organizations are ‘highly selective’ about the information they provide — raising concerns about greenwashing — and almost nine in ten (88%) hold the view that companies only disclose when they are forced to do so.
Where businesses do make long-term investments in sustainability, 80% of investors say that they often fail to explain their rationale, and they argue that this can make such investments hard to evaluate.
Room for Improvement
Interestingly, many businesses do seem to recognize that there is room for them to improve their approach to reporting. Just over half (54%) of the organizations surveyed said they provide investors with relevant information on sustainability activity, leaving a significant percentage who recognize that they do not; and two fifths (41%) of finance leaders interviewed, admitted their current ESG reporting would not stand up to the scrutiny of basic assurance standards, known as “reasonable assurance.”
Dr. Matthew Bell, EY Global Climate Change and Sustainability Services Leader, says: “There’s no denying that companies are making headway on their sustainability credentials, and they are doing so against a tide of economic volatility and geopolitical uncertainty. But these efforts can only hit home if they are seen as credible.
“What this survey shows is that businesses and the investors they rely on still have very different goals and expectations in relation to sustainability. But this is much more than a difference in perspective: It’s a disconnect which poses a real threat to the smooth running of capital markets and ultimately the fight against climate change.”
Common Ground on Reporting Flaws
The survey highlights some common ground between businesses and their investors — they agree on the weaknesses of current reporting standards and call out the lack of requirements for supporting evidence; the separation of ESG reporting from mainstream financial reporting; and the lack of forward-looking disclosure, as key issues that need to be addressed.
The survey outlines some steps that organizations can take in order to strengthen confidence, and it highlights two priorities — improving sustainability reporting designed to meet expectations and elevating the role of finance leaders and the finance function in this reporting.
Tim Gordon, EY Global Financial Accounting Advisory Services Leader, says, “Businesses that are serious about securing trust and a reputation for long-term focus must ensure that sustainability is built into their reporting processes — systemically, strategically and rigorously. Only then will we see investor skepticism subsiding and businesses feeling that they’re being recognized for their efforts to become more sustainable.”