The vast majority (97 per cent) of institutional investors said they conduct an evaluation of their target companies’ non-financial disclosures, representing close to a 20 per cent increase since 2017, according to a global survey by EY.
“Investors have a more sophisticated understanding of the positive link between a business’ environmental, social and governance impact and their financial performance,” said Thibaut Millet, leader of climate change and sustainability services for EY Canada, in a press release. “Non-financial information is playing a pivotal role in investment decision-making, and will increasingly continue to weigh on Canadian investor minds as they take a step back to focus on a business’ value creation to sustain long-term growth.”
However, the survey found the rise in interest in non-financial disclosures hasn’t resulted in cooperation from potential investee companies in every case. More than half (56 per cent) of respondents said they’d looked at companies that either didn’t have non-financial disclosures, or the disclosures they had weren’t good enough to effectively compare them with competitors.
“Many organizations have taken an active role in disclosing what policies and practices are in place, but what’s often missing are measures of accountability,” said Millet. “Investors no longer want to know what the company is doing, but how they’re doing it — and how their ESG impact stacks up against others. Better accounting standards for non-financial information are needed to establish standardized data and consistent metrics cross-industry.”
In terms of seeking some kind of standardization for disclosure, 70 per cent of institutional investors said they think national regulators are best suited to help close the information gap. As well, trade groups could be helpful in identifying specific areas of information that may be more materially relevant to certain industry’s individual efforts to be more sustainable.
“Having a common framework in place would be beneficial to both institutional investors and companies looking to receive their investments,” said Millet. “Investors would have the ability to compare non-financial data across industries and regions, while businesses would benefit from greater transparency to help restore trust during a time when credibility may be at risk.”