Businesses and investors across Asia-Pacific at odds over sustainability efforts

• EY survey reveals wide gap between expectations of Asia-Pacific business leaders and investors on sustainability, posing risks to capital markets
• 75% of investors say businesses are “highly selective” about disclosure on sustainability activity
• 74% of region’s investors want companies to focus on environmental, social and governance (ESG) activity; but only 58% of businesses are willing to do so

Businesses and many of their biggest investors across Asia-Pacific do not agree on the action required to meet sustainability objectives – 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 and Institutional Investor Survey (pdf).

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, 74% of investor respondents believe companies should invest in improvements relating to ESG matters, even if it impacts their short-term profits, but only 58% of business leader respondents hold the same view.

Greenwashing concerns

Investors are also highly critical of businesses’ approach to disclosing important information on sustainability activity. Almost all investors surveyed (98%) say that ESG reporting is a crucial part of their investment decision-making, but three-quarters (75%) feel that organizations are “highly selective” about the information they provide – raising concerns about greenwashing. Furthermore, about nine in 10 (91%) hold the view that companies only disclose when they are forced to do so.

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 (55%) of the organizations surveyed report they provide investors with relevant information on sustainability activity, leaving a significant cohort (45%) that recognize they do not; and almost two-fifths (38%) of finance leaders interviewed admit their current ESG reporting would not stand up to the scrutiny of basic assurance standards, known as “reasonable assurance.”

Terence Jeyaretnam, EY Asia-Pacific Climate Change and Sustainability Services Leader, says:

“While companies are making progress on their sustainability credentials, investors still feel strongly that they are not getting the data-driven insights they require to evaluate a company’s strategy and risk profile, especially relating to ESG. It’s an information gap that threatens to stifle access to capital for many organizations and, ultimately, could hinder the advancement of decarbonization targets.”

Common ground on reporting flaws

The survey highlights some common ground between businesses and their investors. They agree that key issues demanding action include: the weaknesses of current reporting standards and the lack of requirements for supporting evidence; the separation of ESG reporting from mainstream financial reporting; and the lack of forward-looking disclosure.

The survey outlines steps that organizations can take to strengthen confidence, and highlights two priorities: improving sustainability reporting designed to meet expectations and elevating the role of finance leaders and the finance function in this reporting.

Notes to editors

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About the research

This report draws on a unique survey of companies and investors, providing a fresh perspective on the reporting and sustainability debate from both the issuers of reporting and the users of those disclosures. The research was conducted by FT-Longitude on behalf of EY Global Financial Accounting Advisory Services (FAAS) and EY Global Climate Change and Sustainability Services (CCaSS).

In all, 1,040 chief financial officers (CFOs) and financial controllers of large organizations were surveyed alongside 320 respondents from major buy-side institutions around the world:

• Among the 1,040 company respondents, 50% are CFOs (including 16% Group CFOs) and 34% are financial controllers. Respondents were drawn from 25 countries across the Americas, Europe and Asia-Pacific, with 14 sectors represented, and 29% of the organizations had revenues of more than US$10b a year.
• Among the 320 buy-side respondents, over a quarter (27%) are chief investment officers, and respondents are drawn from 23 countries across the Americas, Europe and Asia-Pacific. There is representation across different segments – banking and capital markets, insurance, wealth and asset management – and one-in-five (20%) have assets-under-management of US$50b or more.