A company’s sustainability disclosures are one of the important insights investors use to understand the impact of sustainability issues on a business’s performance, risks and long-term growth prospects. Today, 99% of investors surveyed utilize companies’ ESG disclosures as a part of their investment decision-making, including 74% who use a rigorous and structured approach. By comparison, in the 2018 EY Global Institutional Investor Survey, only 32% of investors surveyed were using a rigorous approach.
However, there is a marked disconnect between investors and companies when it comes to the sustainability disclosures in today’s corporate reporting. Investors feel strongly that they do not get the reporting and data-driven insight they require to inform their investment decision-making and how they evaluate a company’s growth and risk profile. The research found that 73% of investors surveyed say “organizations have largely failed to create more enhanced reporting, encompassing both financial and ESG disclosures, which is critical in our decision-making.”
This finding could reflect, for example, investor appetite for enhanced climate disclosures. The EY 2022 Global Climate Risk Barometer, a comprehensive analysis of disclosures made by more than 1,500 companies across 47 countries, found that while more companies are reporting on climate risk, they are not providing meaningful commentary about the challenges they face. For example, more than half of companies surveyed (51%) are still either not conducting scenario analysis, or not disclosing the results.
These ongoing challenges with sustainability disclosures could potentially create a trust deficit. Some companies feel the complex trade-offs they can be asked to make are not always recognized, and the research shows that investors in turn are skeptical about companies’ intentions: